C. | The full amount of the bonuses (100%) has been provisioned in the Company’s financial statements for the year ended December 31, 2019. | | (1) | In 2015, 1,471,971 share options were granted to Mr. Isaac Benbenisti, in his capacity as the Company's CEO with a vesting period of up to three years at an exercise price of NIS 18.08 that constitutes a premium of 5% on the average share price of the Company on the Tel-Aviv Stock Exchange, during the 30 days preceding the grant date. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 8 million. Mr. Benbenisti's options vest in three tranches: 33% of the entire amount on October 28, 2016, 33% of the entire amount on October 28, 2017 and the balance on October 28, 2018. Mr. Benbenisti's eligibility to exercise each of the above detailed tranches will be available to him until October 27, 2021. In 2018, 810,027 share options and 194,064 restricted shares were granted to Mr. Isaac Benbenisti, in his capacity as the Company's CEO with a vesting period of up to four years. The exercise price of the options is NIS 18.86 which constitutes a premium of 5% on the average share price of the Company on the Tel-Aviv Stock Exchange, during the 30 days preceding the grant date. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 3.4 million and the fair value of the restricted shares was approximately NIS 3.4 million. Mr. Benbenisti's options and restricted shares vest in four tranches: 25% of the entire amount on October 28, 2019, 25% of the entire amount on October 28, 2020, 25% of the entire amount on October 28, 2021 and the balance on October 28, 2022. Mr. Benbenisti's eligibility to exercise each of the share options above detailed tranches will be available to him until October 27, 2024. With respect to the restricted shares granted to the CEO in 2018, performance targets which constitute a precondition to vesting and a mechanism for deferring vesting were defined as further detailed above under CEO Equity Incentive Grant. | | | (2) | “Other compensation” includes: expenses for retirement that were accumulated during the reporting period of this annual reportAnnual Report and will be paid only upon retirement and vehicle expenses. | | | (3) | For further information regarding the CEO's compensation see above under CEO Compensation. |
| | (4) | In 2016, 269,000 share options and 114,000 restricted shares were granted to Mr. Yuval Keinan with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 1.3 million and the fair value of the restricted shares was approximately NIS 2 million. In 2019, 277,134 share options and 86,889 restricted shares were granted to Mr. Yuval Keinan with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million. | | | (5) | In 2018, 245,887 share options and 79,118 restricted shares were granted to Mr. Tamir Amar with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million. | | | (6) | In 2017, 173,076 share options and 72,522 restricted shares were granted to Ms. Terry Yaskil with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million. | | | (7) | In 2018, 272,968 share options and 86,451 restricted shares were granted to Mr. Yakov Truzman with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million.
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(7) | In 2015, 161,369 share options and 76,378 restricted shares were granted to Mr. Liran Dan with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.9 million and the fair value of the restricted shares was approximately NIS 1.4 million. In 2018, 138,098 share options and 51,887 restricted shares were granted to Mr. Liran Dan with a vesting period of up to three years and subject to the fulfillment of performance targets. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.7 million and the fair value of the restricted shares was approximately NIS 1.0 million. |
| | (8) | These sums represent the relative portion of the expenses of all option and restricted share allocations recorded during the reported period and include expenses for the 20182019 vesting period of options and restricted shares (including those which have not fully vested yet). |
All options and restricted shares noted above were granted pursuant to the terms of the 2004 Amended and Restated Equity Incentive Plan, among others, with respect to the exercise or earning periods and the expiration date of the options. See “Item 6E.2 EQUITY INCENTIVE PLAN ”.
6C. Board Practices References in this annual reportAnnual Report to “external directors” are to those directors who meet the definition of external directors under the Israeli Companies Law (“dahatz”), and references in this annual reportAnnual Report to “US independent directors” are to those directors who meet the definition of independence under applicable listing requirements of NASDAQ. References in this annual reportAnnual Report to “Israeli independent directors” are to any director who meets the definition of independence under the Israeli Companies Law (“bilty taluy”). 6C.1 TERMS OF DIRECTORS Directors are generally elected by the annual general meeting of shareholders to serve (i) for three years, in the case of external directors under the Israeli Companies Law, or (ii) until the next annual general meeting of the shareholders (unless their office becomes vacant earlier, in accordance with the provisions of our Articles of Association). An extraordinary general meeting of shareholders may elect any person as a director, to fill an office which became vacant, or to serve as an additional member to the then existing Board of Directors, or to serve as an external director, or in any event in which the number of the members of the Board of Directors is less than the minimum set in the Articles of Association (seven directors), provided that the maximum number of seventeen directors is not exceeded. Any director elected in such manner (excluding an external director) shall serve in office until the coming annual general meeting of shareholders. The Articles of Association also provide that the Board of Directors, with the approval of a simple majority of the directors, may appoint an additional director to fill a vacancy or to serve as an additional member to the then existing Board of Directors, provided that the maximum number of seventeen directors is not exceeded. Any director elected in such manner shall serve in office until the coming annual general meeting of shareholders and may be re-elected.
Israeli directors are appointed by the Israeli founding shareholders, generally upon a written notice signed by at least two of the Israeli founding shareholders who are the record holders of (i) at least 50% of minimum Israeli holding shares or (ii), who hold in the aggregate the highest number of minimum Israeli holding shares among the Israeli founding shareholders. Any Israeli founding shareholders who have specified connections to a competing mobile radio telephone operator (as defined in the license) of the Company are prohibited from participation in any such appointment. The notice is addressed to our company secretary indicating the appointment until the appointee’s successor is elected by a similar notice. See “10B.3 Rights Attached to Shares”. In 2009, Ms. Osnat Ronen was appointed as a director on behalf of the Israeli founding shareholders.
No director has a service contract with the company or its wholly-owned subsidiaries providing for benefits upon termination of employment.
Our Office Holders (generally senior managers) serve at the discretion of the Board of Directors or until their successors are appointed. See “Item 4B.12f Our Mobile Telephone License” for a description of additional requirements of the composition of our Board of Directors and the appointment of its members.
6C.2 ALTERNATE DIRECTORS Our Articles of Association provide that a director may appoint an individual to serve as an alternate director. An alternate director may not serve as such unless such person is qualified to serve as a director. In addition, no person who already serves as a director or an alternate director on the Company’s Board of Directors may serve as an alternate director of another director on the Company’s Board of Directors. Under the Israeli Companies Law, an alternate director is generally treated as a director. Under our Articles of Association, an alternate director shall have all the authorities of the director appointing him. The alternate director may not vote at any meeting at which the director appointing him is present. Unless the time period or scope of any such appointment is limited by the appointing director, such appointment shall be effective for all purposes and for an indefinite time, but will expire upon the expiration of the appointing director’s term.
6C.3 EXTERNAL DIRECTORS UNDER THE ISRAELI COMPANIES LAW The Israeli Companies Law generally requires that Partner shall have at least two external directors on its Board of Directors who meet the independence criteria set by the Israeli Companies Law. The appointment of an external director (for the initial term of three years) under the Israeli Companies Law must be approved by the general meeting of shareholders provided that either: (a) the majority of votes in favor of the appointment shall include at least a majority of the votes of shareholders not constituting controlling parties (as stated in the Israeli Companies Law) in the Company, or those having a personal interest (as defined in the Israeli Companies Law) (other than a personal interest not resulting from their relations with the controlling parties) in the approval of the appointment participating in the vote, which votes shall not include abstaining votes; or (b) the total number of objecting votes of the shareholders mentioned in clause (a) does not exceed 2% of the total voting rights in the company. Mr. Barry Ben-Zeev and Mr. Jonathan Kolodny serve as our external directors under the Israeli Companies Law. In general, external directors may be re-appointed for two additional three-year terms by one of the following mechanisms: (i) the Board of Directors proposed the nominee and his appointment is approved by the shareholders in the manner required to appoint external directors for their initial term (described above); (ii) one or more shareholders that hold at least 1% or more of the company’s voting rights proposed the external director for re-appointment, and the nominee is approved by a majority of the votes cast at the shareholders meeting, provided that: (A) the total number of shareholders’ votes at the shareholders meeting shall not include the votes of shareholders who are controlling parties and those having a personal interest in the appointment approval (other than a personal interest not resulting from their relations with the controlling parties) and abstaining votes; (B) the aggregate votes cast by shareholders who are not excluded under clause (A) above in favor of the appointment exceed 2% of the voting rights in the company; and (B) the external director (a) is not a related or competing shareholder, or the relative of such a shareholder, at the time of the appointment and (b) is not affiliated with a related or competing shareholder at the time of the appointment or the two years preceding the appointment (the term “related or competing shareholder” is defined as a shareholder who nominated the external director for reappointment or a material shareholder (a shareholder that holds more than 5% of the shares or voting rights in the company), if at the date of such appointment, any of either such shareholder, the controlling shareholder of such shareholder, or a company controlled by either of them, has business with the company or is a competitor of the company); and (iii) the external director proposed himself or herself and is approved by the process under clause (ii) above. Under regulations promulgated under the Israeli Companies Law, certain companies, including dual listed companies, like Partner, may re-appoint external directors for additional terms of up to three years each (beyond the three terms of three years each), provided that all of the following conditions are fulfilled: (1) the Audit Committee and, subsequently, the Board of Directors, approves that, considering the external director’s expertise and special contribution to the work of the Board of Directors and its committees, his re-appointment for an additional term of office is in the best interest of the Company; (2) the re-appointment for the additional term of office is done in conformity with one of the mechanisms described above; (3) prior to approving the re-appointment, the general meeting of shareholders is informed of the duration of the external director’s service as an external director and is presented with the rationale of the Audit Committee and the Board of Directors for extending the external director’s term of office. The Israeli Companies Law requires that at least one external director has accounting and financial expertise, and that the other external director(s) have professional competence, as determined by the company’s Board of Directors. Under promulgated regulations, a director having accounting and financial expertise is a person who, due to his education, experience and talents, is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him to understand in depth the company’s financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business administration, accounting, law or public administration or has another academic degree or has other higher education, all in the main business sector of the company or in a relevant area for the Board of Directors position, or has at least five years’ experience in one or more of the following (or a combined five years’ experience in at least two or more of the following): a senior position in the business management of a corporation with a substantial scope of business, a senior public officer or a senior position in the public service or a senior position in the field of the company’s business.
6C.4 FINANCIAL EXPERTS UNDER THE ISRAELI COMPANIES LAW In accordance with the Israeli Companies Law, Partner’s Board of Directors has determined that the minimum number of directors with “accounting and financial expertise” that Partner believes is appropriate, in light of the particulars of Partner and its activities, is three. Under the Israeli Companies Law, only one of such “experts” is required to be an external director. The Board of Directors has determined that eightseven of our current directors have “accounting and financial expertise”: Mr. Adam Chesnoff,Ms. Osnat Ronen, Mr. Jonathan Kolodny, Mr. Yoav Rubinstein, Mr. Barry Ben-Zeev (Woolfson), Ms. Osnat Ronen,Mr. Richard Hunter, Mr. Yossi Shachak, Mr. Arie Steinberg, and Mr. Yehuda Saban and Mr. Sumeet Jaisinghani.Saban.
6C.5 NASDAQ CORPORATE GOVERNANCE RULES AND OUR PRACTICES Under NASDAQ Rule 5615(a)(3), a foreign private issuer such as the Company may follow its home country practice in lieu of the requirements of the NASDAQ Rule 5600 Series (“Corporate Governance Requirements”), with certain exceptions, provided that it discloses each requirement that it does not follow and describes the home country practice followed in lieu of such requirement. We describe below the areas where we follow our home country practice rather than the NASDAQ Corporate Governance Requirements:
| – | In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications, including in our mobile license, in relation to ownership or control over us, under certain events specified in our Articles of Association, the Board of Directors may determine that certain ordinary shares are dormant shares. Consequently, we received an exemption from NASDAQ with respect to its requirement (now under NASDAQ Rule 5640) that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance. |
| – | As permitted under Israeli Companies Law, the Company’s Board of Directors generally proposes director nominees for shareholder approval. The conditions of NASDAQ Rule 5605(e), that director nominees must either be selected or recommended to the Board by the independent directors or a nomination committee comprised solely of independent directors, are thus not satisfied. |
| – | According to applicable Israeli legal requirements, the establishment or amendment of certain stock option or purchase plans requires the approval of the company’s Board of Directors and approval of the shareholders’ meeting only for the grant of equity compensation to the Chief Executive Officer, directors or controlling partners. We received an exemption from the requirement set out in NASDAQ Rule 5635(c) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended, based on the fact that the NASDAQ requirement is inconsistent with the applicable Israeli legal requirements described above. |
| – | The Israeli Companies Law, requires that at least two members of the Board of Directors satisfy the conditions of ”external directors”, which also satisfies the conditions of an Israeli independent director (“bilty taluy”). Two of our thirteeneight directors are external directors and satisfy the conditions of both Israeli independent directors and independent directors according to NASDAQ criteria. Two additional directors, (who are not external directors) satisfy the conditions of independent directors according to NASDAQ criteria, one of whom satisfies the conditions of an Israeli independent director. However, the requirement of NASDAQ Rule 5605(b), that a majority of the Board of Directors be comprised of independent directors, is thus not satisfied. |
6C.66C.5a BOARD COMMITTEES
The Company’s Articles of Association provide that the Board of Directors may delegate its authorities or any part of them to committees of the Board of Directors as it deems appropriate, subject to the provisions of the Israeli Companies Law. Our Board of Directors has established an audit committee, a compensation committee and a security committee.
6C.6a6C.5b AUDIT COMMITTEE
Pursuant to the rules of the Securities and Exchange Commission (the “SEC”) and the listing requirements of the NASDAQ Global Select Market, as a foreign private issuer, we are required to establish an audit committee consisting only of members who are U.S. “independent” directors as defined by SEC rules. In accordance with the Company’s Audit Committee Charter, our audit committee is responsible among other things, for overseeing the Company’s financial reporting process and the audits of the Company’s financial statements, including monitoring the integrity of the Company’s financial statements and the independence and performance of the Company’s internal and external auditors. Our audit committee is also directly responsible for the appointment, remuneration and oversight of our independent auditor and for establishing procedures for receiving and handling complaints received by the Company regarding accounting, internal controls and audit matters. The Audit Committee also assists the Board in conducting periodic reviews of the Company’s management of cyber risk. The Israeli Companies Law requires public companies, including Partner, to appoint an audit committee comprised of at least three Board of Directors members, including all the company’s external directors, the majority of whom must be Israeli independent directors and the chairman of the audit committee is required to be an external director. Under the Israeli Companies Law neither the controlling party or his relative, the chairman of the Board of Directors, any director employed by the company or by its controlling party or by an entity controlled by the controlling party, any director who regularly provides services to the company, to its controlling party or to an entity controlled by the controlling party, nor any director who derives most of its income from the controlling party, may be eligible to serve as a member of the audit committee.
The responsibilities of our audit committee under the Israeli Companies Law include, among others, identifying irregularities in the management of the company’s business and approving related party transactions as required by law, determining whether certain related party actions and transactions are “material” or “extraordinary” in connection with their approval procedures (See 6C.9 APPROVAL OF RELATED PARTY TRANSACTIONS AND COMPENSATION), assessing the scope of work and remuneration of the company’s independent auditor, assessing the company’s internal audit system and the performance of its internal auditor and making arrangements regarding the handling of complaints by employees about company’s business management deficiencies and regarding the protection given to employees who have made complaints. The Company’s audit committee was appointed by our Board of Directors to review our financial statements, in compliance with U.S. legal requirements (as described above) and in compliance with Israeli regulations (from which we are exempt). Our audit committee is comprised of three Board of Directors members: Mr. Barry Ben Zeev (committee chairman; external director), Mr. Jonathan Kolodny (external director) and Mr. Arik Steinberg (Israeli independent director). All of the audit committee members meet the SEC’s definition of independent directors for the purpose of serving as audit committee members as well as the Israeli Companies Law’s definition of Israeli independent directors. In accordance with the SEC definition of “independent” director, none of them is an affiliated person of Partner or any subsidiary of Partner. The Board of Directors has determined that all three audit committee members are “audit committee financial experts” as defined by applicable SEC regulations. See “Item 16A Audit Committee Financial Expert” below.
6C.6b6C.5c COMPENSATION COMMITTEE
The Israeli Companies Law requires public companies, including Partner, to appoint a compensation committee comprised of at least three Board of Directors members, including all the company’s external directors who must constitute the majority of its members. Other members of the committee should be directors whose terms of compensation are the same as external directors and the chairman of the compensation committee is required to be an external director. Under the Israeli Companies Law, the compensation committee’s responsibilities include, among others, recommending to the Board of Directors, a compensation policy for office-holders to be approved by the shareholders of the Company, see “6B Compensation”. The compensation committee also makes recommendations to the Board of Directors once every three years regarding the continuing effectiveness of the compensation policy, reviews modifications to the compensation policy from time to time and its implementation and approves the actual compensation terms of Office Holders which require the compensation committee’s approval according to the relevant provisions of the Israeli Companies Law. Our compensation committee is comprised of three Board of Directors members: Mr. Barry Ben Zeev (committee chairman; external director), Mr. Jonathan Kolodny (external director) and Mr. Arik Steinberg (Israeli independent director). All of the compensation committee members meet the SEC’s definition of independent directors for the purpose of serving as the compensation committee members as well as the Israeli Companies Law’s definition of Israeli independent directors. In accordance with the SEC definition of “independent” director, none of them is an affiliated person of Partner or any subsidiary of Partner.
| 6C.6c6C.5d | SECURITY COMMITTEE |
Pursuant to an amendment to our license from April 2005, a Board of Directors committee has been formed to deal with security matters. Only directors with the required clearance and those deemed appropriate by Israel’s General Security Service may be members of this committee. The committee must consist of at least four members, who are subject to the clearance required from the Israeli General Security Service and at least one external director. Where any matter requires a Board of Directors’ resolution and it is a security matter, then the committee should be authorized to discuss and to resolve such security matter and the resolution should bind the Company. However, in cases where the security matter concerned requires review by the Board of Directors or the audit committee according to the Israeli Companies Law or other applicable law, such as a transaction with a related party, it should be submitted for approval in accordance with the requirements of the applicable U.S. law, the Israeli Companies Law and any other applicable laws, provided that, in any case, only directors with security clearance can participate in any forum which will deal with security matters. In April 2005, our Board of Directors approved the formation of the security committee to consist of four Israeli directors, who are subject to Israeli security clearance and security compatibility to be determined by the General Security Service. Currently, Mr. Elon Shalev, Mr. Jonathan Kolodny, Ms. Osnat Ronen, Mr. Richard Hunter and Mr. Arieh SabanOri Yaron are members of the security committee. The appointments of Mr. Richard Hunter and Mr. Ori Yaron are subject to clearance by the Israeli General Security Service. 6C.6 INTERNAL AUDITOR The Israeli Companies Law requires the Board of Directors of a public company to appoint an internal auditor nominated by the audit committee. A person who does not satisfy certain independence requirements may not be appointed as an internal auditor. The role of the internal auditor is to examine, among other things, the compliance of the company’s conduct with applicable law and orderly business procedures. Our internal auditor is Mr. Yehuda Motro, formerly the internal auditor of the Tel Aviv Stock Exchange. 6C.86C.7 FIDUCIARY DUTIES OF AN OFFICE HOLDER
The Israeli Companies Law governs the duty of care and duty of loyalty which an Office Holder owes to the company. An “Office Holder” is defined in the Israeli Companies Law as a director, general manager, chief executive officer, executive vice president, vice president, or any other person assuming the responsibilities of any of the foregoing positions without regard to such person’s title and other managers directly subordinated to the general manager. The duty of loyalty requires the Office Holder to act in good faith and in the company’s favor and to avoid any conflict of interest between the Office Holder’s position in the company and personal affairs, and proscribes any competition with the company or the exploitation of any business opportunity of the company in order to receive personal advantages for him or others. This duty also requires him to reveal to the company any information or documents relating to the company’s affairs that the Office Holder has received due to his position as an Office Holder. The duty of care requires an Office Holder to act in a way that a reasonable Office Holder would have acted in the same position and under the same circumstances. This includes the duty to utilize reasonable means to obtain information regarding the advisability of a given action submitted for his approval or performed by virtue of his position and all other relevant information.
6C.96C.8 APPROVAL OF RELATED PARTY TRANSACTIONS AND COMPENSATION
6C.9a6C.8a Approval of Related Party Transactions
The Israeli Companies Law requires that a transaction between the company and its Office Holder, and also a transaction between the company and another person in which an Office Holder has a personal interest, requires the approval of the Board of Directors if such a transaction is not an “extraordinary transaction”, although, as permitted by law and subject to any relevant stock exchange rule, our Articles of Association allow our audit committee to approve such a transaction, without the need for approval from the Board of Directors. If such a transaction is an extraordinary transaction (that is, a transaction not in the ordinary course of business, not on market terms, or that is likely to have a material impact on the company’s profitability, assets or liabilities), generally in addition to audit committee approval, the transaction also must be approved by our Board of Directors, and, in certain circumstances, also by the general meeting of shareholders. Under the Israeli Companies Law, an extraordinary transaction between a public company and a controlling party of the company or an extraordinary transaction between a public company and another person, in which the controlling party has a personal interest (including a private placement), and a transaction between a public company and a controlling party or his relative, directly or indirectly, including, without limitation, via an entity controlled by the controlling party, for receiving services by the company (and if the controlling party is also an Office Holder in the company for his terms of service, and if he is an employee of the company (but not an Office Holder in it) his employment in the company) must be approved by the audit committee or the compensation committee if relates to terms of employment (as the case may be), the Board of Directors and the general meeting of shareholders, provided that either: (a) the majority of votes in favor of the transaction shall include at least a majority of the votes of shareholders who do not have a personal interest in approval of the transaction, who participate in the voting, or (b) the total number of objecting votes of the shareholders mentioned in clause (a) does not exceed 2% of the total voting rights in the company.
The audit committee is also authorized to determine, with respect to related party transactions with a controlling shareholder or in which the controlling shareholder has a personal interest, even if they are not extraordinary transactions, an obligation to conduct a competitive process (to be supervised by the audit committee, or any person authorized on its behalf or via any other method approved by the audit committee) or to determine that other processes will be conducted prior to the engagement in such transactions and all in accordance with the type of transaction. The specific criteria for such a process may be determined by the audit committee annually in advance. In addition, the audit committee is authorized to determine the approval process for transactions that are not negligible, as well as determine which types of said transactions would require the approval of the audit committee. “Non-negligible transactions” are defined as related party transactions with a controlling shareholder or in which the controlling shareholder has a personal interest, that the audit committee has deemed not to be an extraordinary transaction, but which have also been classified by the audit committee as a non-negligible transaction. Additionally, the audit committee may decide on such classifications for these types of transactions, based on criteria set annually in advance.
The Israeli Companies Law requires that an Office Holder or a controlling party promptly disclose any personal interest that he has and all related material information known to him, in connection with any existing or proposed transaction by the company. The company may then approve the transaction in accordance with the provisions of its Articles of Association and the Israeli Companies Law. Under the Israeli Companies Law, if the Office Holder or a controlling party has a personal interest in the transaction, an approval that the transaction is in the best interest of the company is required. In most circumstances, the Israeli Companies Law restricts Office Holders who have a personal interest in a matter which is considered at a meeting of the Board of Directors or the audit committee from being present at such meeting, participating in the discussions or voting on any such matter. An exemption exists in the event that a majority of the directors in the meeting have a personal interest in the matter provided, that in case a majority of the Board of Directors has a personal interest in the matter, the transaction will require the approval of the general meeting of shareholders. For information concerning the direct and indirect personal interests of certain of our Office Holders and principal shareholders in certain transactions, see “ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS”. 6C.9b6C.8b Compensation
The terms of employment of Office Holders including compensation, equity awards, severance and other benefits, exemption from liability and indemnification require the approval of the compensation committee and the Board of Directors. The terms of employment of directors and the Chief Executive Officer must also be approved at the general meeting of shareholders by a majority of the Company’s shareholders, provided that (i) such majority includes at least a majority of the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, who participate in the voting (abstentions are disregarded), or (ii) the total number of objecting votes of the shareholders mentioned in clause (i) does not exceed 2% of the total voting rights in the company. Notwithstanding the foregoing, a company may be exempted from receiving shareholder approval with respect to the terms of employment of a candidate for a Chief Executive Officer position, if such candidate meets certain independence criteria, the terms are in line with the Compensation Policy and the compensation committee has determined for specified reasons that shareholder approval would prevent the engagement. See “Item 6C.6b COMPENSATION COMMITTEE”. Changes to existing terms of employment of Office Holders (other than directors) can be made with the approval of the compensation committee only (following adoption of the Compensation Policy), if the committee determines that the change is not substantially different from the existing terms. Under the Israeli Companies Law and related regulations, the compensation payable to external directors and Israeli independent directors is subject to certain further limitations. 6C.106C.9 DUTIES OF A SHAREHOLDER
Under the Israeli Companies Law, a shareholder has a general duty to act in good faith and in a customary manner towards the company and the other shareholders and to refrain from improperly exploiting his power in the company, particularly when voting in the general meeting of shareholders on (a) any amendment to the articles of association, (b) an increase of the company’s authorized share capital, (c) a merger, or (d) approval of related party transactions which require shareholder approval. A shareholder should also avoid deprivation of other shareholders' rights. In addition, any controlling party, any shareholder who knows that it possesses power to determine the outcome of a shareholder vote and any shareholder that, pursuant to the provisions of the articles of association, has the power to appoint or prevent an appointment of an Office Holder in the company or any other power towards the company, is under a duty to act in fairness towards the company under the Israeli Companies Law.
6C.10 INDEMNIFICATION AND RELEASE 6C.11a6C.10a Indemnification
As permitted by the Israeli Companies Law, our Articles of Association provide that Partner may indemnify an Office Holder of Partner to the fullest extent permitted by law. Without derogating from the foregoing, and subject to limitations set forth in the Israeli Securities Law, our Articles of Association specifically provide that Partner may indemnify an Office Holder of Partner for liability or expense he incurs or that is imposed upon him as a result of an action or inaction by him (or together with other Office Holders of Partner) in his capacity as an Office Holder of Partner including (subject to specified conditions) also in advance, as follows:
| 1. | Financial liability incurred by, or imposed upon the Office Holder in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by an authorized court; |
| 2. | Reasonable legal expenses, including attorney fees, incurred by the Office Holder or which he was ordered to pay by an authorized court in the context of a proceeding filed against him by Partner or on Partner’s behalf or by a third party, in a criminal proceeding in which he was acquitted or in a criminal proceeding in which he was convicted of an offense which does not require criminal intent; |
| 3. | Reasonable legal expenses, including attorney fees, incurred by the Office Holder due to an investigation or proceeding conducted against him by an authority authorized to conduct such investigation or proceeding and which ended without filing of an indictment against him and without the imposition of a financial liability as a substitute for a criminal proceeding or that was ended without filing of an indictment against him but for which he was subject to a financial liability as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms under the law or in connection with a financial sanction(“itzum caspi”); |
| 4. | Payment to an injured party as a result of a violation set forth in Section 52.54(a)(1)(a) of the Israeli Securities Law, including by indemnification in advance or expenses incurred in connection with a proceeding (“halich”) under Chapters H3, H4 or I1 of the Israeli Securities Law, or under Chapter 4 of Part 9 of the Israeli Companies Law, in connection with any affairs, including reasonable legal expenses, which term includes attorney fees, including by indemnification in advance; and |
| 5. | Expenses, including reasonable legal fees, including attorney fees, incurred by an Office Holder with respect to a proceeding in accordance with the Restrictive Trade Practices Law- 1988 ("Restrictive Trade Practices Law"). |
Our Articles of Association also permit us to indemnify any Office Holders of Partner for any other liability or expense in respect of which it is permitted or will be permitted under applicable law to indemnify an Office Holder of Partner. The Israeli Companies Law and our Articles of Association also permit us to undertake in advance to indemnify an Office Holder with respect for items (2), (3) and (4) above, or any other matter permitted by law. The Israeli Companies Law and our Articles of Association also permit us to undertake in advance to indemnify an Office Holder with respect to item (1) above, provided however, that the undertaking to indemnify is restricted to events which in the opinion of the Board of Directors are anticipated in light of Partner’s activities at the time of granting the undertaking to indemnify, and is limited to a sum or measurement determined by the Board of Directors to be reasonable under the circumstances. The undertaking to indemnify shall specify the events that, in the opinion of the Board of Directors are expected in light of the Company’s actual activity at the time of grant of the undertaking and the sum or measurement which the Board of Directors determined to be reasonable under the circumstances.
The Israeli Companies Law combined with our Articles of Association also permits us to indemnify an Office Holder retroactively for all kinds of events, subject to any applicable law. In no event may we indemnify an Office Holder for any of the following:
| 1. | a breach of the duty of loyalty toward us, unless the Office Holder acted in good faith and had reasonable grounds to assume that the action would not harm Partner’s interest; |
| 2. | a breach of the duty of care done intentionally or recklessly (“pzizut”) other than if made only by negligence; |
| 3. | an act intended to unlawfully yield a personal profit; |
| 4. | a fine, a civil fine (“knas ezrahi”), a financial sanction (“itzum kaspi”) or a penalty (“kofer”) imposed on him; and |
| 5. | a proceeding (“halich”). |
We have undertaken to indemnify our Office Holders, subject to certain conditions as aforesaid. We consider from time to time the indemnification of our Office Holders, which indemnification will be subject to approval of our compensation committee, Board of Directors and in certain cases, such as indemnification of directors and the CEO, also of our shareholders. Under the indemnification letters granted to Office Holders prior to the extraordinary general meeting of shareholders held on October 17, 2013 (“October 2013 EGM”), the aggregate indemnification amount payable by us to Office Holders and other indemnified persons pursuant to all letters of indemnification issued to them by us will not exceed the higher of (i) 25% of shareholders equity and (ii) 25% of market capitalization, each measured at the time of indemnification (the “Combined Maximum Indemnity Amount”, and “the Original Indemnification Letter”). Under the indemnification letters granted to Office Holders after the October 2013 EGM, the aggregate indemnification amount payable by us to Office Holders (including, among others, Office Holders nominated on behalf of Partner in subsidiaries) pursuant to all letters of indemnification issued or that may be issued to them by Partner on or after the October 2013 EGM, for any occurrence of an event set out in such a letter (including an attachment thereto) will not exceed 25% of shareholders equity (according to the latest reviewed or audited financial statements approved by Partner’s Board of Directors prior to approval of the indemnification payment) (“the Revised Indemnification Letter”). However, under the circumstances where indemnification for the same event is to be made in parallel under the Revised Indemnification Letter and to one or more indemnified persons under the Original Indemnification Letter, the maximum indemnity amount for the indemnified persons that received the Revised Indemnification Letter shall be adjusted so it does not exceed the Combined Maximum Indemnity Amount to which any other indemnified person is entitled under the Original Indemnification Letter. 6C.11b6C.10b RELEASE
The Companies Law and our Articles of Association authorize the Company, subject to obtaining the required approvals (of our compensation committee, Board of Directors and in certain cases, such as release of directors and the CEO, also of our shareholders), to release our Office Holders, in advance, from such persons’ liability, entirely or partially, for damage in consequence of the breach of the duty of care toward us as set forth in accordance with any law, including the liabilities and expenses for which the Company may indemnify Office Holders as set forth above, see Item 6C.11a Indemnification. Furthermore, the Company may release Office Holders that are controlling shareholders or their relatives, subject to the receipt of the approvals in accordance with any law. Said release will not apply to a resolution or transaction in which the controlling shareholder or any Office Holder in the Company (including other Office Holders than the Office Holder being granted the release) has a personal interest. Notwithstanding the foregoing, we may not release such person from such person’s liability, resulting from any of the following events: (i) the breach of duty of loyalty towards us; (ii) the breach of duty of care made intentionally or recklessly (“pzizut”), other than if made only by negligence; (iii) an act intended to unlawfully yield a personal profit; (iv) a fine (“knass”), a civil fine (“knass ezrahi”), a financial sanction (“itzum caspi”) or a penalty (“kofer”) imposed upon such person; and (v) the breach of duty of care in a distribution (“haluka”). In addition to the Original Indemnification Letter and the Revised Indemnification Letter, the Company granted new indemnification and release letters to our Office Holders at the annual general meeting of shareholders held on September 28, 2016.
6C.126C.11 INSURANCE
The Israeli Companies Law and the Company’s Articles of Association authorize the Company (subject to certain exceptions) to enter into an insurance contract, and to arrange and pay all premiums in respect of an insurance contract, for the insurance of the liability of our Office Holders for liabilities the Office Holder incurs as a result of a direct or indirect action or inaction undertaken by such person (or together with other Office Holders of the Company) in his capacity as an Office Holder of the Company for any of the following:
| (1) | The breach of the duty of care towards the Company or towards any other person; |
| (2) | The breach of the duty of loyalty towards the Company provided that the Office Holder has acted in good faith and had reasonable grounds to assume that the action would not harm the Company; |
| (3) | A financial liability imposed on him in favor of another person; |
| (4) | A payment which the office holder is obligated to pay to an injured party as set forth in section 52.54(a)(1)(a) of the Securities Law and expenses that the Office Holder incurred in connection with a proceeding under Chapters H3, H4 or I1 of the Securities Law, or under Chapter 4 of Part 9 of the Israeli Companies Law, in connection with any affairs, including reasonable legal expenses, which term includes attorney fees. |
| (5) | Expenses, including reasonable legal expenses fees, including attorney fees, incurred by the Office Holder with respect to a proceeding in accordance with the Restrictive Trade Practices Law. |
| (6) | Any other matter in respect of which it is permitted or will be permitted under any law to insure the liability of an Office Holder in the Company. |
6D. Employees At December 31, 2018,2019, we had 2,7822,770 employees on a full time equivalent basis, compared with 2,7972,782 employees at December 31, 2017,2018, and 2,6862,797 at December 31, 2016.2017. The number of full-time equivalent employees at year-end 2016, 2017, 2018 and 2018,2019, according to their activity, was as follows:
| | 2016** | | | 2017 | | | 2018 | | | 2017 | | | 2018 | | | 2019** | | | | | | | | | | | | | | | | | | | | | Customer service* | | | 1,462 | | | | 1,567 | | | | 1,452 | | | 1,567 | | | 1,452 | | | 1,456 | | Sales and sales support* | | | 457 | | | | 488 | | | | 550 | | | 488 | | | 550 | | | 541 | | Information technology (including Engineering) | | | 341 | | | | 349 | | | | 379 | | | 349 | | | 379 | | | 403 | | Marketing and Content | | | 47 | | | | 44 | | | | 55 | | | 44 | | | 55 | | | 56 | | Finance | | | 85 | | | | 80 | | | | 83 | | | 80 | | | 83 | | | 88 | | Human Resources, Administration & Security | | | 94 | | | | 86 | | | | 87 | | | 86 | | | 87 | | | 91 | | Operations & Logistics | | | 133 | | | | 127 | | | | 124 | | | 127 | | | 124 | | | 136 | | Remaining operations | | | 67 | | | | 56 | | | | 52 | | | 56 | | | 52 | | | 63 | | TOTAL | | | 2,686 | | | | 2,797 | | | | 2,782 | | | 2,797 | | | 2,782 | | | 2,834 | |
*Many positions in Customer service and Sales and sales support are filled by more than one part-time employee so that the employee headcount for those activities is about 12% greater than the number of full-time equivalents set forth above. ** Due to organizational structure changes during 2017, that included consolidationStarting in 2019, the number of certain divisions andfull-time employees also includes the shiftingnumber of manpower between divisions, we have revisedfull-time employees of PHI on a proportional basis of the 2016 numbers to provide comparable information . In 2017, the Company added significant fiber and television activities, including in-house technicians, service and sales representatives, which caused an increaseCompany's share in the overall number.PHI (50%).
The collective employment agreements that we signed on March 13, 2016 and on December 12, 2016 with the employees' representatives and the Histadrut, the employees' union and that were valid for a period of three years (2016-2018) were renewed.renewed in March 2019. The renewed agreement is valid from January 1, 2019 for a period of three years until December 31, 2021 except for the provisions regarding salary increases, which renewed at the end of 2019 and are valid for a period of one year (2019)(2020) and will be renegotiated for years 2020-2021year 2021 towards the end of 2019. 2020. As in the previous agreements, the organizational chapter includes, among others, provisions regarding manning and changing of positions, termination of employment tenure and a dispute resolution mechanism. The economic chapter includes, among others, provisions regarding terms of employment, benefits and welfare and provides for annual bonuses to employees and a profit sharing mechanism provision under certain conditions. The agreement applies to the Company's employees, excluding certain managerial and specific positions. See also “3D.2j“3D.2k The unionization of our employees has negatively affected and may continueto negatively affect our financial results.results.”
In addition, we are subject to various Israeli labor laws and practices, as well as orders extending certain provisions of collective bargaining agreements between the Histadrut and the Coordinating Bureau of Economic Organizations, the federation of employers’ organizations. Such laws, agreements and orders cover a wide range of areas and impose minimum employment standards including, working hours, minimum wages, vacation and severance pay, and special issues, such as equal pay for equal work, equal opportunity in employment, and employment of women, youth, disabled persons and army veterans. Our employees are entitled to a pension insurance, in the amounts as follows (amounts vary according to choice of a pension fund or a manager’s insurance fund): employer provision for pension and compensation: 12.5% - 17.33% of the employee’s salary and employee provision for pension: 6% -7% of the employee’s salary. We also offer some of our employees the opportunity to participate in a “Continuing Education Fund,” which also functions as a savings plan. Each of the participating employees contributes an amount equal to 2.5% of their salary and we contribute between 5% - 7.5% of such employee’s salary. In addition, in accordance with the collective employment agreement, employees that have been employed for 36 months or more by the Company are entitled to participate in a “Continuing Education Fund,” by contributing an amount equal to 2.5% of their salary and we contribute 7.5% of such employee’s salary. According to the National Insurance Law, Israeli employers and employees are required to pay predetermined sums to the National Insurance Institute. These contributions entitle the employees to health insurance and benefits in periods of unemployment, work injury, maternity leave, disability, reserve military service, and bankruptcy or winding-up of the employer. We believe that our relations with our employees are good. Most of our employees participate in a Health Insurance Program which provides additional benefits and coverage which the public health system does not provide. Eligibility to participate in the policy does not depend on seniority or position. Israeli labor law subjects employers to increased liability, including monetary sanctions and criminal liability, in cases of violations of certain labor laws and certain violations by contractors providing maintenance, security and cleaning services.
6E. Share Ownership 6E.1 SHARE OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT
As of March 1, 2019,2020, to the best of the Company’s knowledge, none of our directors or senior management held more than 1% of our issued and outstanding ordinary shares, including restricted shares, restricted share units (see below for an explanation), and options to acquire ordinary shares, except as set forth in the following paragraph. Directors and senior management do not have different voting rights than other shareholders of the Company.
As of March 1, 2019,2020, our senior management held, in the aggregate, outstanding options to purchase up to 4,496,5454,876,309 of our ordinary shares, of which 1,878,6522,351,746 options were vested and exercisable as of that date, in addition to 832,210833,477 “restricted shares” of which 85,767181,880 restricted shares were vested as of that date (as described in "Item 6E.2 Equity Incentive Plan" below). As of such date, the Company's CEO, Mr. Isaac Benbenisti held options and restricted shares together to purchase 1.22%1.21% of our issued and outstanding shares. No options or restricted shares have been granted to our directors. The table below sets forth the number of outstanding options held by our senior management of the Company, including the CEO of the Company, according to exercise price and expiration date as of March 1, 2019:2020: Option expiration Year | | Number of outstanding options held | | Weighted average exercise price (NIS) | | | Number of outstanding options held | | | Weighted average exercise price (NIS) | | 2020 | | 305,370 | | 47.97 | | | 279,700 | | | 49.67 | | 2021 | | 1,428,782 | | 17.94 | | | 1,402,340 | | | 17.92 | | 2022 | | 224,183 | | 18.71 | | | 132,594 | | | 18.35 | | 2023 | | 320,428 | | 19.28 | | | 357,766 | | | 19.39 | | 2024 | | 1,743,176 | | 18.62 | | | 1,743,176 | | | 18.62 | | 2025 | | 474,606 | | 17.11 | | | 808,655 | | | 16.14 | | 2026 | | | 152,078 | | | 14.83 | | TOTAL | | 4,496,545 | | 20.29 | | | 4,876,309 | | | 19.72 | |
Outstanding options to purchase the shares of the Company held by the CEO of the Company:
Option expiration Year | | Number of outstanding options held | | | Weighted average exercise price (NIS) | | 2021 | | | 971,971 | | | | 18.08 | | 2024 | | | 810,027 | | | | 18.86 | | TOTAL | | | 1,781,998 | | | | 18.43 | |
6E.2 EQUITY INCENTIVE PLAN The Amended and Restated 2004 Equity Incentive Plan (formerly known as the 2004 Equity Incentive Plan) (the “Plan”) is intended to promote the interests of the Company and its shareholders by providing employees, directors, office holders and advisors of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ of, or service to, the Company and to acquire a proprietary interest in the long-term success of the Company. The Plan’s principal terms include: Exercise price determination. The compensation committee shall determine the option and restricted share unit ("RSU") (as further explained below) exercise price per ordinary share, subject to applicable law, regulations and guidelines. Unless otherwise provided in the grant instrument, the option exercise price shall be paid in NIS and the RSU exercise price shall be zero. Exercise price adjustment. The exercise price of options shall be reduced in the following events: (1) dividend distribution other than in the ordinary course: by the gross dividend amount so distributed per share, and (2) dividend distribution in the ordinary course: With respect to certain options (depending on the date of the granting of the options), the exercise price shall be reduced by the amount of a dividend in excess of 40% of the Company’s net income for the relevant period per share, or else by the gross dividend amount so distributed per share.
Cashless exercise. Most of the options may be exercised only through a cashless exercise procedure; while holders of other options may choose between cashless exercise and the regular option exercise procedure. In accordance with such cashless exercise, the option holder would receive from the Company, without payment of the exercise price, only the number of shares whose aggregate market value equals the economic gain which the option holder would have realized by selling all the shares purchased at their market price, net of the option exercise. Unless otherwise determined by the committee in the grant instrument, the Company at its sole and absolution discretion may obligate the grantee to pay the nominal value of the ordinary shares issued and in such event the ordinary shares will not be issued (and the options and RSUs will not be exercised) prior to the payment of such nominal value. Exercise Period. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will not exceed ten years from the date of option grant (considering, if applicable, among others, the provisions of the Compensation Policy) unless shortened pursuant to the terms of the Plan. Vesting. The vesting schedule of granted securities will be determined by the compensation committee and Board of Directors at their sole discretion and will be detailed in the grant instrument. The committee may set performance targets as a vesting criterion (independently or in combination with other criteria). Acceleration of vesting and adjustment. In the event of termination of employment following a change of control, vesting of granted securities and exercisability of outstanding granted securities shall be accelerated. Upon the occurrence of any merger, consolidation, reorganization or similar event or transaction (e.g., subdivision or consolidation), equitable changes or adjustments to the number of shares subject to each outstanding option and RSU will be made in order to prevent dilution or enlargement of the option and RSU holders’ rights and appropriate adjustments shall be made in the number and other pertinent elements of any outstanding restricted shares, with respect to which restrictions have not yet lapsed prior to any such change. Restricted Shares. The Company may grant “restricted shares” to beneficiaries of the Plan. Restricted shares awarded to a grantee are held by the Plan’s trustee in custody for the benefit of the grantee generally until the restrictions thereon have lapsed (e.g., earning period and the other applicable conditions and restrictions under the Plan and the grant instrument under which these restricted shares were awarded). In accordance with the Plan, as long as the restricted shares are held by the trustee, the trustee shall not exercise the voting rights of the underlying ordinary shares at the general meetings of shareholders unless requested to do so by the Company. In such event, the trustee shall vote the underlying ordinary shares proportionally to the shareholders vote and if the vote of public shareholders is counted separately, proportionally to the public shareholders vote. Notwithstanding the foregoing, the Company has reserved the right, upon recommendation of legal counsel, to request the grantee to exercise individually his or her voting rights. In addition, any dividend distributed during the period in which the restricted shares are held by the trustee, is accumulated and transferred to the grantee when the shares have been earned (i.e. when the restrictions lapse). Except as provided in the immediately preceding paragraph and in the Plan and subject to the terms of the grantee’s relevant grant instrument, the grantee shall have, with respect to his or her restricted shares, all of the rights of a shareholder of the Company, including the right to vote the ordinary shares (endorsed to the trustee as long as the restricted shares are held by the trustee), and the right to receive any dividend thereon (accumulated together with the underlying restricted shares). Restricted Share Units. The Company may grant “restricted share units” to beneficiaries of the Plan. Restricted share units are options, bearing an exercise price of no more than the underlying share’s nominal value. Upon the lapse of the vesting period of a RSU, such RSU shall automatically become an issued and outstanding share of the Company, subject to certain applicable conditions and restrictions under the Plan and the grant instrument and unless otherwise determined by the Board of Directors, the grantee shall pay to the Company its nominal value as a precondition to the issuance of such share. Change in Control and other certain events. Upon a Change in Control (as defined in the Plan) transaction of the Company as well as other certain events including a merger, reorganization and consolidation, granted securities shall, at the sole and absolute discretion of the Board of Directors, either solely or in any combination: be substituted for similar granted securities to purchase shares of a successor entity, be assumed by a successor entity, be substituted for similar “phantom” granted securities of the Company or the successor entity, or each non-vested granted securities shall become fully exercisable. In the event that the ordinary shares will no longer be traded on any stock exchange, at the sole and absolute discretion of the Board of Directors, either solely or in any combination: each granted securities shall be substituted for a similar phantom granted securities, or each non-vested granted securities shall become fully exercisable. Amendment and termination of the Plan. The Plan may generally be altered or amended in any respect by a resolution of the Board of Directors of the Company, subject to the Plan, applicable law and the rules and regulations of any stock exchange applicable from time to time to the Company, by reason of their applicability to its shareholders or otherwise. The Board of Directors may, at any time and from time to time, terminate the Plan in any respect, subject to any applicable approvals or consents that may be otherwise required by law, regulation or agreement, including by reason of their applicability to the shareholders or otherwise, and provided that no termination of the Plan shall adversely affect the terms of any granted security which has already been granted. Administration of the Plan. The Plan is administered by the compensation committee of the Board of Directors. Subject to the restrictions of the Companies Law, the compensation committee is authorized, among other things, to exercise all the powers and authorities, either specifically granted to it under the Plan or necessary or advisable for the administration of the Plan. The description of the Plan above is only a summary and is qualified by reference to the full text thereof which has been included as an annex to this annual report.Annual Report. See Exhibit 15.(a).1 incorporated by reference in this annual report.OnAnnual Report.On March 13, 2016, the Board of Directors approved certain amendments to the Plan. The main amendments to the Plan include: (a) amendment to the cashless exercise formula; (b) the ability to allocate restricted share units to the Company’s employees and office holders; (c) automatic extension of the exercise period due to black-out periods; (d) adjustments to the grantee’s rights under any granted securities due to the occurrence of certain events, including a rights offering; (e) a provision allowing the Company's management bodies to decide to pay a grantee the financial benefit embedded in his equity compensation in cash compensation instead of equity compensation, in certain events in which the Company is unable to issue shares resulting from exercise of options or RSUs or to release any restricted share to a grantee; (f) extension of the exercise period as a result of a change of control event; (g) a provision that allows the Company to limit a grantee from making transactions in the granted securities in connection with any underwritten public offering of the Company and (h) certain exercise restrictions in accordance with the Tel Aviv stock exchange rules. Share options and restricted shares (collectively, “granted securities”) have been granted to employees in accordance with the Plan. Upon exercise each option provides the right to acquire one ordinary share that confers the same rights as the other ordinary shares of the Company. As of December 31, 2018, options to acquire a total of 9,697,266 ordinary shares and 1,209,521 restricted shares (allocated to a trustee on behalf of the employees under the plan) are outstanding. On November 20, 2018, the Company’s Board of Directors approved the increase in the number of shares which may be granted under the Plan by one million shares, which represented approximately 0.61% of the Company’s issued share capital as of November 20, 2018, up to a total of 26,917,000 ordinary shares. In 2018,2019, following the approval of the Company’s Board of Directors, 2,536,3621,232,226 share options and 813,310397,476 restricted shares were granted to senior office holders, managers and other employees of the Company and its subsidiary, compared to 1,201,3582,536,362 share options and 507,146813,310 restricted shares granted during 2017.2018. The vesting of the options and the earning of the restricted shares granted after June 2014 are subject to vesting or restriction periods and are also subject to performance conditions set by the Company’s organs. As of December 31, 2019, options to acquire a total of 9,020,689 ordinary shares and 1,230,464 restricted shares (allocated to a trustee on behalf of the employees under the plan) are outstanding. From the beginning of 20192020 and until March 1, 2019,2020, the Company approved the allocation of 474,606152,078 options and 148,80361,414 restricted shares for two of theour Company's office holders, all in accordance with the Company's Equity Incentive Plan, as amended. The vesting of these options and the earning of these restricted shares are subject to vesting / restriction period of three years from the grant date (one third will vest or be earned in each year), as well as performance conditions set by the Company's organs. Ordinary shares issuance and repurchase: In June 2017, the Company issued 10,178,211 shares of the Company, of which 508,911 shares were issued as Israeli founding shareholder shares. The total net consideration received was approximately NIS 190 million. In January 2020, the Company issued 19,330,183 shares of the Company of which 937,283 shares were issued as Israeli founding shareholder shares. The total net consideration received was approximately NIS 276 million. The offering expenses totaled NIS 10 million. Through December 31, 2008, the Company repurchasedpurchased its own 4,467,990 shares ofat the Company as part of a buy-back plan at a total cost of NIS 351 million, and during 2018, the Company repurchasedpurchased its own 6,501,588 shares ofat the Company at a total cost of NIS 100 million (upon repurchase the shares were recorded as "treasury shares"). In accordance with the Israeli Companies Law, the treasury shares are considered dormant shares as long as they are held by the Company, and as such, they do not bear any rights (including the right to vote in general meetings of shareholders and to receive dividends) until they are transferred to a third party. Some of the treasury shares were offered as restricted share awards ("RSAs") to employees under the Plan.Plan as restricted shares awards ("RSAs"). As of December 31, 2018,2019, a total of 8,560,2648,275,837 treasury shares remained of which 1,210,8331,247,583 were allocated as RSAs to a trustee on behalf of the employees under the Plan. The RSAs offered under the Plan are under the control of the Company until vested under the Plan and therefore are not presented in the financial statements as outstanding shares until vested. Information in respect of options and restricted shares granted under the Plan is set forth below: | | Through December 31, 2018 | | | Through December 31, 2019 | | | | Number of options | | | Number of RSAs | | | | | | | | Granted | | | 33,840,569 | | | | 5,112,078 | | | 35,072,795 | | | 5,509,554 | | Shares issued upon exercises and vesting | | | (6,524,865 | ) | | | (2,409,314 | ) | | (6,528,031 | ) | | (2,695,053 | ) | Cancelled upon net exercises, expiration and forfeitures | | | (17,618,438 | ) | | | (1,493,243 | ) | | | | | | | | | Outstanding | | | 9,697,266 | | | | 1,209,521 | | | 9,020,689 | | | 1,230,464 | | Of which: | | | | | | | | | | | | | | | Exercisable | | | 6,266,965 | | | | | | | 5,623,921 | | | | | Vest in 2019 | | | 1,352,861 | | | | 516,869 | | | Vest in 2020 | | | 1,096,972 | | | | 389,199 | | | 1,632,797 | | | 678,379 | | Vest in 2021 | | | 777,962 | | | | 254,937 | | | 1,145,182 | | | 371,076 | | Vest in 2022 | | | 202,506 | | | | 48,516 | | | 618,789 | | | 181,009 | |
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 7A. Major Shareholders The following table, setstogether with the notes hereto set forth certain information as of March 1, 2019,2020, with respect to each person whom we believe to be the beneficial or, if so indicated, registered owner of 5% or more of our ordinary shares. Except where otherwise indicated, we believe, based on information publicly filed with the Securities and Exchange Commission (the "SEC") or furnished to us by the principal shareholders, that the beneficial owners of the ordinary shares listed below have sole investment and voting power with respect to such ordinary shares. None of our major shareholders has any different voting rights than any other shareholder. See “Item 10B.3 Rights Attached to Shares”.
Name | | Shares beneficially owned | | | Issued Shares (1)% | | | Issued and Outstanding Shares (1)% | | S.B. Israel Telecom Ltd.(2) | | | 49,862,800 | | | | 26.17 | | | | 27.16 | | Phoenix-Excellence Group (3) | | | 14,294,982 | | | | 7.50 | | | | 7.78 | | Meitav Dash Group (4) | | | 16,395,183 | | | | 8.61 | | | | 8.93 | | Menora Mivtachim Group (5) | | | 13,518,037 | | | | 7.10 | | | | 7.36 | | Clal Insurance Group (6) | | | 11,483,355 | | | | 6.05 | | | | 6.25 | | Psagot Investment House (7) | | | 10,154,123 | | | | 5.33 | | | | 5.53 | | Treasury shares (8) | | | 6,901,619 | | | | 3.62 | | | | - | | Public (9) | | | 67,913,767 | | | | 35.65 | | | | 36.99 | | Total | | | 190,523,866 | | | | 100.00 | | | | 100.00 | |
Name | | Shares beneficially owned | | | Issued Shares (1)% | | | Issued and Outstanding Shares (1)% | | S.B. Israel Telecom Ltd.(2) | | | 49,862,800 | | | | 29.13 | | | | 30.41 | | Phoenix-Excellence Group (3) | | | 10,761,339 | | | | 6.29 | | | | 6.56 | | Meitav Dash Group (4) | | | 13,724,001 | | | | 8.02 | | | | 8.37 | | Menora Mivtachim Group (5) | | | 12,238,019 | | | | 7.15 | | | | 7.46 | | Treasury shares (6) | | | 7,200,628 | | | | 4.21 | | | | - | | Public (7) | | | 77,403,548 | | | | 45.21 | | | | 47.20 | | Total | | | 171,190,335 | | | | 100.00 | | | | 100.00 | |
(1) | As shown above and used throughout this annual report,Annual Report, the term “Issued and Outstanding Shares” does not include any treasury shares held by the Company. Treasury shares, which are included in “Issued Shares”, have no voting, dividend or other rights under the Israeli Companies Law, as long as they are held by the Company (“dormant shares”). |
(2) | S.B. Israel Telecom, an affiliate of Saban Capital Group LLC, a private investment firm, based in Los Angeles, California, specializing in the media, entertainment and communications industries, held on March 1, 2019, approximately 30.41%is the registered owner of our Issued and Outstanding49,862,800 shares and voting rights. In addition to the shares indicated in the table above,Company’s share register. On November 11, 2019, S.B. Israel Telecom also purchased from Scailex Corporation Ltd. (“Scailex”) (whichfiled an amendment to its Schedule 13D with the SEC stating that it had no sole or shared voting or dispositive power over any shares of the Company, and that as a result of the Receiver Appointment (as defined in 2016 changed its namethe filed amendment), as of November 12, 2019, the Reporting Persons (as defined in the filed amendment) ceased to “Suny Cellular Communication Ltd.”) 2,983,333beneficially own any ordinary shares representing another, approximately 1.82%of the Company. On November 12, 2019, the District Court of Tel Aviv issued a judicial order which appointed attorney Ehud Sol as receiver (the "Receiver") for all of the Company’s shares held by S.B. Israel Telecom. See "Item 3D.3a Approximately 27.16% of our Issuedissued and Outstandingoutstanding shares and voting rights which shares are to be transferredheld by Scailex to S.B. Israel Telecom free and clear of any lien on one or more future deferred closing dates, subject to the conditions set fortha receiver (under Israeli law), who may not act in the share purchase agreement entered into between Scailex and S.B. Israel Telecom.best interests of the Company or its shareholders." |
(3) | Phoenix Holdings Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange (“Phoenix”), and Excellence Investments Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange (“Excellence”), which is controlled by Phoenix, hold shares in the Company directly and through its wholly owned subsidiaries. (Phoenix, Excellence and their subsidiaries collectively, the “Phoenix-Excellence Group”). These holdings are held according to the following segmentation: 1,105,7482,125,624 ordinary shares are held by Excellance Investments, Kesem trust funds, 1,102,000 ordinary shares are held by Provident funds and Management Companies of Provident funds; 1,641,170847,520 ordinary shares are held by Excellence Trust Funds; 751,201ordinary shares are held by Excellence ETFs; 557,050871,556 ordinary shares are held by Phoenix "Nostro" accounts; 21,000 ordinary shares are held by Phoenix Pension funds; 27,000 ordinary shares are held by Linked insurance policies of Phoenix; 6,658,1709,300,281 ordinary shares are held by Partnership for Israeli shares. On March 23, 2020, Phoenix-Excellence Group advised the Company that subsequent to March 1, 2020, their interest has decreased to 14,201,507 ordinary shares. 1,935,000 shares of the 10,761,33914,201,507 shares held by the Phoenix-Excellence Group, representing approximately 1.14%1.02% of our Issued and Outstanding shares and total voting rights, are registered in the Company’s Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. On November 5, 2019 the controlling stake of the Phoenix Excellence Group has been sold to the foreign entities Centerbridge Partners LP and Gallatin Point Capital LLC. On November 12, 2019, the Ministry of Communications issued a temporary order (ending on November 1, 2020) amending the Company’s MRT license and reducing the percentage that the approved Israeli shareholders are required to hold by the amount of shares now held by the foreign entities (from 5% down to 3.82% of the means of control in the Company). This temporary order will allow the Ministry of Communications and the Company one year to resolve the issue of holdings of approved Israeli shareholders in the Company. |
(4) | Meitav Dash Investments Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its wholly owned subsidiaries (Meitav Dash and their subsidiaries collectively, the “Meitav Dash Group”). These holdings are held according to the following segmentation: 8,795,30711,048,877 ordinary shares are held by Meitav Dash provident funds; 3,692,2054,036,939 ordinary shares are held by Meitav Dash mutual funds; 1,236,4891,309,367 ordinary shares are held by Meitav Dash portfolio management. 1,313,911 shares of the 13,724,001 shares16,395,183 held by the Meitav Dash Group, representing approximately 0.8%0.72% of our Issued and Outstanding shares and total voting rights, are registered in the Company’s Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. |
(5) | Menora Mivtachim Holdings Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its subsidiaries (Menora Mivtachim Holdings Ltd. and their subsidiaries collectively, the “Menora Mivtachim Group”). These holdings are held according to the following segmentation: 11,002,041890 ordinary shares are held by Menora holdings; 228,220 ordinary shares are held by "Nostro" insurance; 29,859 ordinary shares are held by "Nostro" Shomera; 13,259,068 ordinary shares are held by Menora Mivtachim Pension and Provident funds; 1,235,978funds. |
(6) | Clal Insurance Company Ltd. an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its subsidiaries. (Clal Insurance Company Ltd. and their subsidiaries collectively, the “Clal Group”). These holdings are held according to the following segmentation: 848,900 ordinary shares are held by Menora Mivtachim "Nostro" accounts. ; 270,484 ordinary shares are held by "Atudot"; 10,363,971 ordinary shares are held by Clal Israel Pension and Provident funds. On March 20, 2020, the Clal Group advised the Company that subsequent to March 1, 2020, their interest has increased to 12,342,474 ordinary shares. |
(6)(7) | Psagot Investment House, Ltd. an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and through its subsidiaries. These holdings are held according to the following segmentation: 7,706,657 ordinary shares are held by Psagot Investment House pension and provident funds and 2,447,466 ordinary shares are held by Psagot Investment House trust funds. On March 19, 2020, the Psagot Investment House, Ltd. advised the Company that subsequent to March 1, 2020, their interest has decreased to 10,011,361 ordinary shares. |
(8) | Treasury shares do not have a right to dividends or to vote. During 2008, the Company repurchased 4,467,990 of the Company's shares and during 2018, the Company repurchased an additional 6,501,588 of the Company's shares, as part of buy-back plans. As of March 1, 2019,2020, the Company has allocated under the Company’s 2004 Amended and Restated Equity Incentive Plan, 1,359,6361,374,218 restricted shares from the treasury shares to a trustee on behalf of the Company’s employees. See “Item 6E.2 EQUITY INCENTIVE PLAN”. |
(7)(9) | The shares under “Public” include 5,317,7126,254,995 shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes.substitutesincluding 937,283 Israeli founding shareholders shares which were issued following a public issuance of the Company shares during January 2020 and are pending the approval of the Ministry of Communications. These shares, together with 1,935,000 shares held by the Phoenix-Excellence Group and 1,313,911 shares held by the Meitav Dash Group, represent approximately 5% of our issued shares (approximately 5.22%5.18% of the Issued and Outstanding Shares). Under the terms of our mobile telephone license, the Israeli founding shareholders from among our founding shareholders and their approved substitutes must hold at least 5% of our issued and outstanding share capital and of each of our means of control. The Israeli founding shareholders must meet the requirements of “Israeli entities” which are defined as individuals who are citizens and residents of Israel and entities formed in Israel and controlled, directly or indirectly, by individuals who are citizens and residents of Israel, provided that indirect control is only through entities formed in Israel, unless otherwise approved by the Minister of Communications. |
As of March 1, 2019,2020, to the best of the Company’s knowledge, none of our directors and senior management held more than 1% of our outstanding ordinary shares; their holdings have been included under “Public” in the table above. For information regarding options held by our senior management to purchase ordinary shares, see “6E- Share Ownership”. We are not aware of any arrangements that might result in a change in control of our Company.
7A.1 OTHER On March 1, 2019, 5,379,2682020, 5,145,496 ADSs (equivalent to 5,379,2685,145,496 ordinary shares) or approximately 3.28%2.80% of our total Issued and Outstanding ordinary shares, were held of record by 3128 registered holders in the United States. There were 34 registered holder accounts of the 3428 with registered addresses outside of the United States. Certain accounts of record with registered addresses other than in the United States may hold our ordinary shares, in whole or in part, beneficially for United States persons. We are aware that many ADSs and ordinary shares are held of record by brokers and other nominees and accordingly the above numbers are not necessarily representative of the actual number of persons who are beneficial holders of ADSs and ordinary shares, or the number of ADSs and ordinary shares beneficially held by such persons.
7B. Related Party Transactions 7B.1 RELATIONSHIP AGREEMENT
Our Israeli founding shareholders and S.B. Israel Telecom are parties to a Relationship Agreement with S.B. Israel Telecom in relation to itstheir direct holdings of our shares and the rights associated with such holdings. (The Receiver exercising rights over the S.B.Telecom shares has the same rights and responsibilities as S.B. Telecom under the agreement. See "Item 3D.3a Approximately 27.16% of our issued and outstanding shares and voting rights are held by a receiver (under Israeli law), who may not act in the best interests of the Company or its shareholders.) See Exhibit 4.(a).1.2 incorporated by reference in this annual report.Annual Report. License Conditions: Required Minimum Israeli and Founding Shareholder Percentages The parties to the Relationship Agreement have agreed that they shall at all times comply with the terms of our license requiring that our founding shareholders or their approved substitutes hold in aggregate at least 26% of our means of control, and that our Israeli founding shareholders or their approved substitutes (from among the founding shareholders and their approved substitutes) hold at least 5% of our means of control. See “Item 4B.12f Our Mobile Telephone License.” Compulsory Transfer in the Event of Default If a party to the Relationship Agreement commits certain events of default described in the agreement, it may be required to offer its shares to the other parties on a pre-emptive basis. Events of default for this purpose include a breach of the Relationship Agreement which has a material adverse effect on Partner, and in the case of such breach, the purchase price at which the shares are to be sold will be market value less a 17.5% discount. Term and Termination The Relationship Agreement continues in full force and effect until we are wound up or cease to exist unless terminated earlier by the parties. The Relationship Agreement will terminate in relation to any individual party after it ceases to hold any share beneficially if it is required to comply with the minimum holding requirements for founding shareholders or Israeli founding shareholders, as applicable, and the transfer of the shares was not made in breach of the Relationship Agreement.
Related agreement among Israeli founding shareholders A shareholders agreement among the Israeli founding shareholders, or their approved substitutes, purports to establish the procedures, rights and obligations with respect to the appointment of the Israeli director. The Company’s position, which is based among others upon a legal opinion from outside counsel, is that the arrangement set in this agreement with respect to the procedures, rights and obligations pertaining to the appointment of the Israeli director is not valid and the Company does not give effect to that arrangement and it acts according to the provision of its license and Articles of Association in connection with the appointment of the Israeli director. In November 2014, the agreement was amended and among other things, Israeli founding shareholders were removed from the Shareholders Agreement, leaving only Scailex (whose shares in the Company that constitute the holdings of Israeli founding shareholders are controlled by a court appointed receiver in light of Scailex’s failure to comply with its obligations to its noteholders for the benefit of Scailex’s noteholders) and Suny Electronics Ltd. (whose shares in the Company are mortgaged to a trustee on behalf of Suny's noteholders and constitute part of the holdings of Israeli founding shareholders) as parties to the Shareholders Agreement. 7B.2 REGISTRATION RIGHTS142
On October 17, 2013, following approval of our general meeting of shareholders, we have entered into a registration rights agreement with S.B. Israel Telecom, our principal shareholder, in which we granted S.B. Israel Telecom:
(1) the right to require us to register ordinary shares held by them under the US Securities Act and to freely dispose of their shares in the U.S. public market. We have agreed that, upon request from S.B. Israel Telecom, we will file a registration statement under the US Securities Act to register ordinary shares held by them, subject to a maximum of one request in any 6-month period and to certain other limitations. There is no limit to the number of registrations that can be requested under the registration rights agreement. The minimum amount of shares that must be included in any registration requested under the registration rights agreement is 2.65% of our outstanding shares.
(2) the right to include their ordinary shares in any registration statement covering offerings of ordinary shares by us.
Pursuant to its terms, the registration rights agreement has expired.
7B.37B.2 TRANSACTIONS WITH PHI
Pursuant to the Network Sharing Agreement between the Company and the limited partnership PHI, the Company has transactions during the normal course of business with PHI. See "Item 4B.8a Overview- cellular network sharing", "Item 5B.4 Total net financial debt " and also note 26(d)9 to the consolidated financial statements. 7C. Interests of Experts and Counsel Not applicable. ITEM 8. FINANCIAL INFORMATION 8A. Consolidated Financial Statements and Other Financial Information Audited financial statements for the three fiscal years ended December 31, 2018,2019, are included under “Item 18. Financial Statements.” 8A.1 LEGAL AND ADMINISTRATIVE PROCEEDINGS In addition to the legal proceedings discussed below, we are party to a number of legal and administrative proceedings arising in the ordinary course of our business. We do not currently expect the outcome of such matters individually or in the aggregate to have a material adverse effect upon our business and financial condition, results of operations and cash flows. We have been named as defendants in a number of civil and criminal proceedings related to our network infrastructure which may result in civil liabilities or criminal penalties against us or our office holders and directors. In addition, we have also been named as defendants in a number of proceedings regarding breaches of our license and legal provisions of various laws including the Consumer Protection Law, Privacy Act and others. Plaintiffs in some of these proceedings have successfully sought or are seeking certification as class actions. The costs that may result from these lawsuits are only accrued for when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, and events arising during the course of legal proceedings may require a reassessment of this risk. The Company’s assessment of risk is based both on the advice of counsel and on the Company’s estimate of the probable amounts that are expected to be incurred. Based on its best judgment of the merits or lack thereof of the class actions described in the first three lists below, the likely range of damages which may be involved, and any provisions made in respect thereof in the Company’s balance sheet, the Company does not currently believe that the outcome of these class actions, individually or in the aggregate, will have a material negative effect on its financial condition or results of operation. See note 20 to the consolidated financial statements for further information regarding litigation and proceedings of which we are currently aware. See also “Item 3D.2p3D.2q We are exposed to, and currently engaged in, a variety of legal proceedings, including class actions and requests to approve lawsuits as class actions.”
The litigations described below involve claims for which requests for certification as class actions and class actions were filed and which specify a material amount of damages or have been previously reported by the Company. The total amount of pending claims (claims which have not been dismissed by the Court or settled) made by plaintiffs in the litigations described below is NIS 2.24 billion.2.1 billion (not including compensation in the amount of NIS 500 for each member of the group claiming compensation for non-monetary damages, as described in section 6 below). | 1. | On September 7, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully charges its customers for services of various content providers, which are sent through text messages (SMS). The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 405 million. The claim was certified as a class action in December 2016. In January 2017, the plaintiffs filed an appeal to the Supreme Court, regarding the definition of the group of customers. Partner estimates that even if the claim will be decided in favor of the approved group of customers (as defined by the District Court), the damages that Partner will be required to pay for, will be immaterial. In November 2018, the Supreme Court dismissed the appeal and the claim was reverted back to the District Court. |
| 2.1. | On July 15, 2014, a claim and a motion to certify the claim as a class action were filed against the Company and against additional cellular operators and content providers. The claim alleges that the cellular operators, including the Company, breached legal provisions and provisions of their licenses and thereby created a platform that led to the customers’ damages alleged in the claim. The total amount claimed against all of the defendants is estimated by the plaintiff to be approximately NIS 300 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 3.2. | On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner required their customers to purchase a router and/or a call adaptor and/or terminal equipment as a condition for using its fixed-line telephony services, an action which would not be in accordance with the provisions of its licenses. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 116 million. In February 2019, the Court approved the request to certify the claim as a class action. Onaction with certain changes. In March 17, 2019, the Company filed an appeal of this decision. In February 2020, the Supreme Court dismissed the appeal request that was filed and the claim was reverted back to the District Court. |
| 4. | 3. | On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that 012 Smile required their customers to purchase a router and/or a call adaptor and/or terminal equipment as a condition for using its fixed-line telephony services, an action which would not be in accordance with the provisions of its licenses. The total amount claimed against 012 Smile is estimated by the plaintiff to be approximately NIS 64 million. In February 2019, the Court approved the request to certify the claim as a class action. Onaction with certain changes. In March 17, 2019, the Company filed an appeal of this decision. In February 2020, the Supreme Court dismissed the appeal request that was filed and the claim was reverted back to the District Court. |
| 5. | 4. | On January 4, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner charges its customers the full price of telecommunication packages that are intended for use abroad despite the fact that the packages are not fully utilized and does not allow customers to transfer the balance to the next trip abroad or to receive a credit for the balance. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 234 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 6. | 5. | On October 24, 2017, a claim and a motion to certify the claim as a class action were filed against the Company and another cellular operator. The claim alleges that Partner harms the privacy of its customers by unlawfully using their location data. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 1 billion. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 7. | 6. | On September 5, 2018,November 17, 2019, a claim and a motion to certify the claim as a class action were filed against the Company.Company and two additional cellular operators. The claim alleges that the collection noticesCompany, as well as the other respondents collected money from its customers for content services for third parties, by using the means of payment that were given to the Company for the purpose of the cellular invoice payment for content services, without receiving consent from these customers prior to the charge, and/or without having documentation with respect to the customers' consent, unlawfully and against its license provisions and/or without the Company first ensuring that the Company sendscustomers received a document that complies with the Consumer Protection Law regarding the specific transaction for which it intends to its customers through its computerized system, constitute unlawful "spam" messages.collect money from them. The total amount claimed from each of the Companyrespondents if the lawsuit is recognized as a class action is NIS 400 million in addition to compensation in the amount of NIS 500 for each one of the group members for non-monetary damages which were allegedly caused to them. The group on whose behalf the claim was estimated byfiled is all Partner subscribers who made such payments from September 2003 until the plaintiffdate that Partner is found to be approximately NIS 125 million. Thehave stopped charging customers for such content services (from this group a group of customers charged for certain content services were excluded in light of other court decisions).The claim is still in its preliminary stage of the motion to be certified as a class action. |
With respect to the following claims that have previously been reported, the Company has reached settlement agreements or agreed upon withdrawals (as noted below, some settlement agreements are still subject to Court approval).
| 1. | On April 12,September 7, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim allegedalleges that the Company chargedunlawfully charges its customers for certainservices of various content services without their consent.providers, which are sent through text messages (SMS). The total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 343405 million. In June 2018, the parties filed a request to approve a revised settlement agreement which the Court approved in February 2019. |
| 2. | On March 24, 2014, aThe claim and a motion to certify the claimwas certified as a class action werein December 2016. In January 2017, the plaintiffs filed against the Company. The claim alleged that the Company did not include in the severance pay calculation for its employees various components that constitute an additionappeal to the salary forSupreme Court, regarding the severance pay calculation and thereby acted unlawfully. The total amount claimed from Partner was estimated bydefinition of the plaintiff to be approximately NIS 100 million.group of customers. In November 2015,2018, the plaintiff filed an amended claimSupreme Court dismissed the appeal and a motion to certify the claim aswas reverted back to the District Court. In February 2020, a class action. In November 2017, the parties filed a revised settlement agreement which was approved byfiled with the Court in July 2018.Court. |
| 3. | 2. | On February 24, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company harasses recipients by sending advertising messages without receiving their prior approval. In addition, the content of the advertisements does not comply with the legal provisions, among others, with respect to the fact that the Company does not enable the advertisement recipients an option to easily remove themselves from the mailing list or send a refusal notice. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiff. In January 2019, the parties filed a settlement agreement and are waiting for the Court's decision. |
| 4. | On April 2, 2017, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges among others, that Partner overcharges its customers without their consent for services that they did not order and does not respond to customers that apply in writing regarding the overcharge contrary to its license. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 60 million. In October 2018, the parties filed an agreed upon remunerated withdrawal request which was approved by the Court.Court in December 2019. |
| 5. | On April 25, 2017, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner misled its customers with respect to certain cellular plans that were represented as including international call minutes while in fact Partner charged its customers that joined these plans for international calls. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. In February 2019, the parties filed an agreed upon remunerated withdrawal request which was approved by the Court. |
The litigations described below involve claims for which requests for certification as class actions were filed and which do not claim any specific aggregate amount of damages to the relevant group in the claim.
| 1. | On July 14, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner is breaching its contractual and/or legal obligation and/or is acting negligently by charging V.A.T for roaming services that are consumed abroad. The plaintiff demands to return the total amount of V.A.T that was charged by Partner for roaming services that were consumed abroad. The plaintiff also pursued an injunction that will order Partner to stop charging VA.T for roaming services that are consumed abroad. In August 2014, the claim was dismissed and in October 2014, the plaintiff filed an appeal with the Supreme Court. The hearing was held in May 2016 before an expanded panel of seven judges and the Supreme Court accepted the appeal in July 2017 and dismissed the District Court's decisions. The claim was reverted back to the District Court. |
| 2. | On August 8, 2012, a claim and a motion to certify the claim as a class action were filed against 012 Smile and another Internet Service Provider. The claim alleges that the defendants breached certain provisions of their licenses by not offering their services at a unified tariff to the same type of customers. The total amount claimed against 012 Smile, if the lawsuit is certified as a class action, was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 3. | On May 4, 2015, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges, that Partner discriminated between its cellular customers, including between new customers and existing customers, by offering the same type of customers, different terms, an action which would not be in accordance with the provisions of its license. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, if the lawsuit is certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 4. | On April 21, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that the infrastructure included in the 012 Smile's plans does not support data speeds that the Company publishes to its customers. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 5. | On November 1, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company sends text messages regarding the volume rate of data packages, which unlawfully include advertisement content, intended to encourage purchasing another data package. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiff. In September 2018, the Court dismissed the claim and in November 2018, the plaintiffs filed an appeal with the Supreme Court. |
| 6. | On September 11, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile and two other international long distance operators. The claim alleges that the defendants charged excessive tariffs from occasional customers for each long distance call minute, contrary to the Telecommunications Law (Telecommunications and Broadcasting), that allows a licensee to charge reasonable payment for a telecommunication service that it provides. The total amount claimed against 012 Smile if the lawsuit is certified as a class action was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 7. | On September 29, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner refunded its customers, in cases where it was apparent that they were overcharged, not in accordance with legal provisions. In addition, the claim alleges that Partner charges some of its customers that subscribe to the "One" service for the provision of this special service even though it was terminated. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 8. | On September 19, 2017, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner breaches its license with respect to coordination of technician visits for internet malfunction repairs. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is stillIn November 2019, the parties filed an agreed upon remunerated withdrawal request that was approved by the Court in its preliminary stage of the motion to be certified as a class action.December 2019. |
| 9. | On September 24, 2017, a claim and a motion to certify the claim as a class action were filed against the Company and Partner Land-Line. The claim alleges that the infrastructure included in the Company's plan does not support data speeds that the Company publishes to its customers. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action. |
| 10.4. | On March 28, 2018, a claim and a motion to certify the claim as a class action were filed against the Company and 012 Smile. The claim alleges that there is a malfunction in the telephony system of the Company and 012 Smile, according to which when a call recipient activates a follow-me service to a number abroad (directly or via intermediate destination, from which a follow-me service is also diverted to a number overseas) and the call is diverted abroad via 012 Smile, the call segment charge from Israel to overseas applies to the caller, as if he placed an international call, rather than to the recipient of the call that activated the follow-me service, thereby violating the provisions of the law and the agreements with their customers. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is stillparties filed an agreed upon remunerated withdrawal request that was approved by the Court in its preliminary stage of the motion to be certified as a class action.April 2019. |
With respect to the following claims which specify an amount of damages which is material for the Company or do not claim any specific amount for the relevant group in the claim, we have begun to assess the risk involved for the Company but at this stage in our analysis we are unable to evaluate, with any degree of certainty, the probability of success of the lawsuit or the range of potential exposure, if any.
| 1. | 5. | On May 3, 2018, a claim and a motion to certify the claim as a class action were filed against the Company and against additional cellular operators. The claim alleges that the Company breached legal provisions by not providing customers with requested copies of call recordings with customer service representatives and allowing them only to listen to the recordings at the Company's service centers. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is stillparties filed an agreed upon remunerated withdrawal request that was approved by the Court in its preliminary stage of the motion to be certified as a class action. January 2020. |
| 2. | 6. | On August 6,September 5, 2018, a claim and a motion to certify the claim as a class action were filed against the Company and 012 Smile.Company. The claim alleges that the collection notices that the Company and 012 Smile unlawfully chargessends to its customers different and higher rates for international calls that are not included in their tariff plans, than those set forth inthrough its customer tariff chart on the 012 Smile website.computerized system, constitute unlawful "spam" messages. The plaintiff noted that it cannot estimate the total amount claimed infrom the lawsuit, shouldCompany was estimated by the lawsuitplaintiff to be certified as a class action. The claim is still in its preliminary stage ofapproximately NIS 125 million. In June 2019, the motion to be certified as a class action.was dismissed without prejudice in accordance with the plaintiff's request. |
| 3. | 7. | On March 3, 2019, a claim and a motion to certify the claim as a class action were filed against the Company and Partner Land-Line. The claim alleges that the Company unlawfully charges its customers for anti-virus services that are not part of an internet or cellular service plan. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The parties filed an agreed upon withdrawal request that was approved by the Court in December 2019. | | | 8. | On July 14, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner is breaching its contractual and/or legal obligation and/or is acting negligently by charging V.A.T for roaming services that are consumed abroad. The plaintiff demands to return the total amount of V.A.T that was charged by Partner for roaming services that were consumed abroad. The plaintiff also pursued an injunction that will order Partner to stop charging VA.T for roaming services that are consumed abroad. In August 2014, the claim was dismissed and in October 2014, the plaintiff filed an appeal with the Supreme Court. The hearing was held in May 2016 before an expanded panel of seven judges and the Supreme Court accepted the appeal in July 2017 and dismissed the District Court's decisions. The claim was reverted back to the District Court. In March 2020, a settlement agreement was filed for the Court's approval. | | | 9. | On September 29, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner refunded its customers, in cases where it was apparent that they were overcharged, not in accordance with legal provisions. In addition, the claim alleges that Partner charges some of its customers that subscribe to the "One" service for the provision of this special service even though it was terminated. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. In March 2020, the parties filed an agreed upon remunerated withdrawal request that was approved by the Court the same day it was filed. |
The litigations described below involve claims for which requests for certification as class actions were filed and which do not claim any specific aggregate amount of damages to the relevant group in the claim.
1. | On August 8, 2012, a claim and a motion to certify the claim as a class action were filed against 012 Smile and another Internet Service Provider. The claim alleges that the defendants breached certain provisions of their licenses by not offering their services at a unified tariff to the same type of customers. The total amount claimed against 012 Smile, if the lawsuit is certified as a class action, was not stated by the plaintiff. In December 2019, the Court dismissed the motion and in January 2020, an appeal was filed with the Supreme Court. | | | 2. | On May 4, 2015, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges, that Partner discriminated between its cellular customers, including between new customers and existing customers, by offering the same type of customers, different terms, an action which would not be in accordance with the provisions of its license. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, if the lawsuit is certified as a class action. In December 2019, the Court dismissed the motion and in January 2020, an appeal was filed with the Supreme Court. | | | 3. | On April 21, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that the infrastructure included in the 012 Smile's plans does not support data speeds that the Company publishes to its customers. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiff. The claim is still in its preliminary stage of the motion to be certified as a class action. |
4. | On November 1, 2016, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company sends text messages regarding the volume rate of data packages, which unlawfully include advertisement content, intended to encourage purchasing another data package. The total amount claimed against the Company if the lawsuit is certified as a class action was not stated by the plaintiff. In September 2018, the Court dismissed the claim and in November 2018, the plaintiffs filed an appeal with the Supreme Court. The Supreme Court dismissed the appeal in March 2020. | | | 5. | On September 11, 2016, a claim and a motion to certify the claim as a class action were filed against 012 Smile and two other international long distance operators. The claim alleges that the defendants charged excessive tariffs from occasional customers for each long distance call minute, contrary to the Telecommunications Law (Telecommunications and Broadcasting), that allows a licensee to charge reasonable payment for a telecommunication service that it provides. The total amount claimed against 012 Smile if the lawsuit is certified as a class action was not stated by the plaintiff. In July 2019, the Court dismissed the motion and in October 2019, an appeal was filed with the Supreme Court. | | | 6. | On September 24, 2017, a claim and a motion to certify the claim as a class action were filed against the Company and Partner Land-Line. The claim alleges that the infrastructure included in the Company's plan does not support data speeds that the Company publishes to its customers. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action. | | | 7. | On April 11, 2019, a claim and a motion to certify the claim as a class action were filed against the Company and additional telecommunication service companies. The claim alleges that the Company, as well as the other respondents, breached their obligations under the law and their license and does not inform its customers as required regarding a free content filtering service and prioritizes a paid service over a free service and the filtering service does not meet the legal requirements and those of the license and is ineffective. The total amount claimed against the respondents if the lawsuit is recognized as a class action, was not stated by the applicants. The claim is still in its preliminary stage of the motion to be certified as a class action. | | | 8. | On July 4, 2019, a claim and a motion to certify the claim as a class action were filed against the Company and two additional cellular operators. The claim alleges that the Company charges its customers for voicemail service without receiving their prior express consent for this service and for its charge and without a contractual right. The total amount claimed against the respondents if the lawsuit is recognized as a class action, was not stated by the applicants. The claim is still in its preliminary stage of the motion to be certified as a class action. | | | 9. | On August 18, 2019, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully charges customers that terminate their engagement with the Company, for speakers and/or tablets and/or other accessories they received from the Company as gifts while they were subscribers of the Company, and at a full and excessive price. The total amount claimed against the respondents if the lawsuit is recognized as a class action, was not stated by the applicants. The claim is still in its preliminary stage of the motion to be certified as a class action. | | | 10. | On August 6, 2018, a claim and a motion to certify the claim as a class action were filed against the Company and 012 Smile and at a later date, following a revision to the motion, also against Partner Land-Line. The claim alleges that the respondents unlawfully charge its customers different and higher rates for international calls that are not included in their tariff plans, than those set forth in its customer tariff chart on the 012 Smile website. The plaintiff noted that it cannot estimate the total amount claimed in the lawsuit, should the lawsuit be certified as a class action. The claim is still in its preliminary stage of the motion to be certified as a class action. |
Finally, as we reported on March 19, 2019, the Israeli Tax Authority ("ITA") is conducting an investigation that involves document collection and the questioning of among others, several current and former Company employees. The investigation is seeking to determine whether there have been violations of the Eilat Free Trade Zone Law regarding the sale of cellular phones in the city of Eilat. The Company is fully cooperating with the ITA. At this stage, the Company is unable to estimate the impact of the investigation on the Company, its results and its condition, if any. During 2018, no new criminal proceedings were brought against us concerning the erection of network sites without building permits. As of December 31, 2018, one2019, no criminal proceeding wasproceedings were pending against us concerning the erection of network sites without building permits but was not pendingor against our office holders and directors. We are currently negotiating with the relevant local authorities to reach a settlement regarding the relocation of affected sites or obtaining building permits for those sites. Settlements of previous criminal proceedings brought against us resulted in Partner, but not its office holders or directors, admitting guilt and paying a fine, and also resulted in the imposition of demolition orders for the relevant sites, the execution of which have been stayed for a period of time to allow us to obtain the necessary permits or to relocate the relevant network site.
8A.2 DIVIDEND DISTRIBUTION POLICY Our Articles of Association allow for our Board of Directors to approve all future dividend distributions, without the need for shareholder approval, subject to the provisions governing dividends under the Israeli Companies Law. The Board of Directors resolved on September 19, 2012, to assess dividend distributions (and their scope) from time to time, by reference to, among other factors, the Company’s cash flow, profitability, debt level, debt coverage ratios and the business environment in general. For the years ended December 31, 2016, 2017 and 2018, no dividend was declared by the Company.No dividends have been distributed since 2013. For risks relating to future payments of dividends, see “Item 3D.2v Based on a decision of the Board of Directors in 2012, dividend distributions are assessed from time to time on the basis of various factors.3D.2x There can be no assurance that dividends will be declared or, if they are, at what level. No dividends have been distributed since 2013.”
We intend to pay any dividends which may be declared in shekels. Under current Israeli regulations, any dividends or other distributions paid in respect of ordinary shares may be freely repatriated in non-Israeli currencies at the rate of exchange prevailing at the time of conversion, provided that Israeli income tax has been paid on or withheld from such dividends. Because exchange rates between the shekel and the US dollar fluctuate continuously, a holder of ADSs will be subject to currency fluctuation generally and, particularly, between the date when dividends are declared and the date dividends are paid. 8B. Changes No significant change has occurred since December 31, 2018,2019, except as otherwise disclosed in this annual report.Annual Report. See also "Item 3D.2e The novel coronavirus disease COVID-19 has had a limited impact on our business and operations to the date of approval of this Annual Report. However, should these trends continue, this may have a material harmful effect on our results of operations and financial position for 2020.", "Item 3D.2f HOT Telecommunications and its controlling shareholder, Altice Europe N.V., have offered to acquire 100% of our shares, but there can be no assurance as to the final terms of such transaction or that the proposed transaction will be consummated. As a result, the market price of our shares and ADRs may fluctuate, and our business, revenues and results of operations may be materially harmed." and “Item 5D.2 Outlook”. ITEM 9. THE OFFER AND LISTING 9A. Offer and Listing Details Our capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange under the symbol “PTNR”. American Depositary Shares (“ADSs”), each representing one of the Company’s ordinary shares, are quoted on the NASDAQ Global Select Market under the symbol “PTNR”. The ADSs are evidenced by American Depositary Receipts (“ADRs”). Citibank serves as our depositary for ADSs.
9B. Plan of Distribution Not applicable.
9C. Markets Our ADSs are quoted on the NASDAQ Global Select Market under the symbol “PTNR”. Our ordinary shares are traded on the Tel Aviv Stock Exchange under the symbol “PTNR”.
9D. Selling Shareholders Not applicable. 9E. Dilution Not applicable.
9F. Expenses of the Issue Not applicable.
ITEM 10. ADDITIONAL INFORMATION 10A. Share Capital Not applicable. 10B. Memorandum and Articles of Association 10B.1 PURPOSES AND OBJECTS OF THE COMPANY We are a public company registered under the Israeli Companies Law as Partner Communications Company Ltd., registration number 52-004431-4.
Pursuant to our Articles of Association, we were formed for the purpose of participating in the auction for the granting of a license to operate cellular radio telephone services in Israel, to provide such services, and without derogating from the above, we are also empowered to hold any right, obligation or legal action and to operate in any business or matter approved by the Company. Pursuant to section three of our Articles of Association, our purpose is to operate in accordance with business considerations to generate profits; provided, however, that the Board of Directors is entitled to donate reasonable amounts to worthy causes, even if such donation is not within the frame of these business considerations. Pursuant to section four of our Articles of Association, our objective is to engage in any legal business.
10B.2 THE POWERS OF THE DIRECTORS The power of our directors to vote on a proposal, arrangement or contract in which the director is personally interested is limited by the relevant provisions of the Israeli Companies Law and our Articles of Association. In addition, the power of our directors to vote compensation to themselves or any members of their body, requires the approval of the compensation committee, the Board of Directors and the general meeting of shareholders. Generally, the Annual Meeting of the Shareholders must be convened to elect directors and a shareholders meeting could terminate the term of office of directors. In addition, our Articles of Association provide that, in certain circumstances relating to our compliance with the license, our Board of Directors may remove any director from the Board of Directors by a resolution passed by 75% or more of the directors present and voting at the relevant meeting. See also “Item 6C Board Practices”.
10B.3 RIGHTS ATTACHED TO SHARES Our registered share capital consists of a single class of 235 million ordinary shares, par value NIS 0.01 per share, of which 171,190,335190,523,866 ordinary shares were issued and 163,839,230183,622,247 shares (does not include treasury shares) and 182,248,029 shares (does not include treasury shares and unearned shares held by trustee on behalf of employees under share based payment plan) were issued and outstanding as of March 1, 2018.2020. All issued and outstanding ordinary shares are validly issued and registered. The rights attached to our ordinary shares are described below. Dividend Rights Holders of ordinary shares are entitled to the full amount of any cash or share dividend subsequently declared. The Board of Directors may propose and approve distribution of a dividend with respect to any fiscal year or quarter only out of profits, subject to the provisions of the Israeli Companies Law. See “Item 10E Taxation.” Shares which are treated as dormant under section 44.6 of our Articles of Association (under circumstances relating to compliance with our license) retain the rights to receive dividends or other distributions to shareholders, and to participate in rights offerings, but no other rights. See “Item 4B.12f Our Mobile Telephone License”. One year after a dividend has been declared and is still unclaimed, the Board of Directors is entitled to invest or utilize the unclaimed amount of the dividend in any manner to the benefit of the Company until it is claimed. We are not obligated to pay interest or linkage on an unclaimed dividend. Voting Rights Holders of issued and outstanding ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders either in person or by proxy. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The quorum required for a general meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. In the event that a quorum is not present within thirty minutes of the scheduled time, the shareholders’ meeting will be adjourned to the same day of the following week, or the next business day thereafter, at the same time and place, or such time and place as the Board of Directors may determine. If at such reconvened meeting a quorum is not present after the lapsing of 30 minutes from the time appointed for holding the meeting, one or more shareholders present in person or by proxy holding or representing in the aggregate at least 10% of the voting rights in the Company will generally constitute a quorum. Any shareholder seeking to vote at a general meeting of our shareholders must first notify us if any of the shareholder’s holdings in the Company requires the consent of the Ministry of Communications. The instructions of a shareholder will not be valid unless accompanied by a declaration by the shareholder as to whether or not the shareholder’s holdings in the Company or the shareholder’s vote requires the consent of the Ministry of Communications due to a breach by the shareholder of the restrictions on transfer or acquisition of means of control, or provisions regarding cross-ownership with other mobile telephone operators or shareholdings or agreements which may reduce or harm competition. If the shareholder does not provide such certification declaration, his instructions will be invalid and his vote not counted.
An ordinary resolution, such as a resolution for the election of directors (excluding external directors), or the appointment of auditors, requires approval by the holders of a majority of the voting rights represented at the meeting, in person or by proxy, and voting thereon. Under our Articles of Association, resolutions such as a resolution amending our Articles of Association or approving any change in the share capital, liquidation, changes in the objectives of the company, or the name of the company, or other changes as specified in our Articles of Association, requires approval of a special majority, representing the holders of no less than 75% of the voting rights represented at the meeting, in person or by proxy, and voting thereon. Under our Articles of Association our directors are generally elected by an ordinary majority of the shareholders at each duly convened annual meeting, and serve until the next annual meeting, and our external directors are elected in accordance with applicable law and/or relevant stock exchange rules applicable to us; or until their respective successors are elected and qualified, whichever occurs first, or in the case of Israeli directors who are appointed by the founding Israeli shareholders, generally upon a written notice signed by at least two of the founding Israeli shareholders who are the record holders of (i) at least 50% of minimum Israeli holding shares or (ii), who hold in the aggregate the highest number of minimum Israeli holding shares among the Israeli founding shareholders. Any Israeli founding shareholders who have specified connections to a competing mobile radio telephone operator (as defined in the license) of the Company are prohibited from participation in any such appointment. The notice is addressed to the Company’s company secretary indicating his appointment, until their respective successors are elected upon such notice. In each annual meeting the directors that were elected at the previous annual meeting are deemed to have resigned from their office, excluding the external directors, who according to the Israeli Companies Law, are elected for a period of three years and the Israeli director whose appointment is terminated generally by a written notice by himself or by the founding Israeli shareholders. A resigning director may be reelected. Each ordinary share represents one vote. No director may be elected or removed on the basis of a vote by dormant shares. The ordinary shares do not have cumulative voting rights in the election of directors. Under our Articles of Association our shareholders discuss our annual consolidated financial statements, at the annual general meeting of shareholders. Directors may be appointed also in certain circumstances by an extraordinary general meeting and by the Board of Directors upon approval of a simple majority of the directors. Such director, excluding the external directors, shall serve for a term ending at the next annual general meeting. Rights in the Company’s Profits Our shareholders have the rights to share in our profits distributed as a dividend and any other permitted distribution. See “Item 10B.3 Rights Attached to Shares-–Dividend Rights.” Rights in the Event of Liquidation All of our ordinary shares confer equal rights among them with respect to amounts distributed to shareholders in case of liquidation. Rights in the Event of Reorganization Upon the sale of the property of the Company, the Board of Directors or the liquidators (in case of a liquidation) may receive and, if the Company’s profits so permit, distribute among the shareholders fully or partially paid up shares, bonds or securities of another company or any other property of the Company without selling them or depositing them with trustees on behalf of the shareholders, provided, however, that they have received the prior authorization adopted by a special majority of the shareholders of the Company (representing at least 75% of the votes of shareholders participating and voting in the relevant general meeting). Such special majority may also decide on the valuation of such securities or property, unless the Company is in or beginning a liquidation process. Limitations on Ownership and Control Ownership and control of our ordinary shares are limited by the terms of our licenses and our Articles of Association. See “Item 4B.12f Our Mobile Telephone License-License Conditions” and “Revoking, limiting or altering our license.” In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications or under our licenses in relation to ownership or control over us, under certain events specified in our Articles of Association, the Board of Directors may determine that certain ordinary shares are dormant shares. According to our Articles of Association, dormant shares bear no rights as long as they are dormant shares, except for the right to receive dividends and other distributions to shareholders. Consequently, we have received an exemption from the requirement set out in NASDAQ’s Marketplace Rule 4351 that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance. In addition, the Board of Directors shall not register a person as a holder of a share before receipt of their declaration that they are not a “relevant person” as defined in our Articles of Association. Our Compensation Policy allows us to allocate in addition to shares, restricted shares. For rights attached to restricted shares see “Item 6E.2 EQUITY INCENTIVE PLAN”.
10B.4 CHANGING RIGHTS ATTACHED TO SHARES According to our Articles of Association, in order to change the rights attached to any class of shares, the general meeting of the shareholders must adopt a resolution to change such rights by a special majority, representing at least 75% of the votes of shareholders participating and voting in the general meeting, and in case of changing the rights attached to certain class of shares, the approval by special majority of each class meeting, is required. 10B.5 ANNUAL AND EXTRAORDINARY GENERAL MEETINGS The Board of Directors must convene an annual general meeting of shareholders at least once every calendar year, within fifteen months of the last annual general meeting. In accordance with our Articles of Association, notice of a general meeting must be sent to each registered shareholder no later than five days after the record date set by the Board of Directors for that meeting, unless a different notice time is required under applicable law. An extraordinary meeting may be convened by the Board of Directors, as it decides or upon a demand of any two directors or 25% of the directors, whichever is lower, or of one or more shareholders holding in the aggregate at least 5% of our issued capital and at least 1% of the voting rights of the Company; or (ii) at least 5% of the voting right of the Company, can seek to convene a shareholders meeting or as otherwise permitted by the Israeli Companies Law. See “Item 10B.3 RIGHTS ATTACHED TO SHARES–Voting Rights.”
One or more shareholders holding (alone or in the aggregate), 1% or more of the share capital of the Company may request that the Board of Directors include an issue on the agenda of a general meeting of shareholders (including the nomination of a candidate to the board of directors), provided that such issue is suitable to be discussed in the general meeting of shareholders. Pursuant to an amendment to regulations promulgated under the Israeli Companies Law, effective from July 2014, said shareholder request should be submitted to the company within three or seven days (depending on the type of resolution dealt with in the convened meeting) following publication of the Company’s notice with respect to its general meeting of shareholders, or, if the Company publishes a preliminary notice stating its intention to convene such meeting and the agenda thereof, within fourteen days of such preliminary notice. Any such proposal must further comply with the information requirements and time frames under Israeli law.
10B.6 LIMITATIONS ON THE RIGHTS TO OWN OUR SECURITIES For limitations on the rights to own our securities see “Item 4B.12f Our Mobile Telephone License– License Conditions,” “ – Our Permit Regarding Cross Ownership” and “Item 10B.3 Rights Attached to Shares – Limitations on Ownership and Control.” 10B.7 LIMITATIONS ON CHANGE IN CONTROL AND DISCLOSURE DUTIES For limitations on change in control see “Item 4B.12f Our Mobile Telephone License– License Conditions” and “– Our Permit Regarding Cross Ownership”. 10B.8 CHANGES IN OUR SHARE CAPITAL Changes in our share capital are subject to the approval of the shareholders at a general meeting of shareholders by a special majority of 75% of the votes of shareholders participating and voting in the general meeting of shareholders. 10B.9 OUR LICENSE PREVAILS IN CASE OF AN INCONSISTENCY If any article of our Articles of Association is found to be inconsistent with the terms of our mobile telephone license granted by the Ministry of Communications (see “Item 4B.12f Our Mobile Telephone License”) or of any other telecommunications license we hold, the provisions of such Article shall be deemed null and void. 10C. Material Contracts Network sharing agreement. In April 2015, the Ministry of Communications approved the 15- year Network Sharing Agreement that we entered into with HOT Mobile. Pursuant to the Network Sharing Agreement, the parties created a 50-50 limited partnership, the purpose of which is to operate and develop a cellular network to be shared by both parties, starting with a pooling of both parties’ radio access network infrastructures to create a single shared radio access network. The limited partnership began operations in August 2015. See “Item 4B.8 OUR NETWORK”.
i-Phone Agreement. Following the expiration of a previous agreement, in June 2016, we entered into a non-exclusive agreement with Apple Distribution International for the purchase and resale of iPhone handsets in Israel. Pursuant to the agreement, we agreed to purchase a minimum quantity of iPhone handsets per year, for a period of three years. The agreement has been extended until May 2020, while the parties are negotiating the renewal of the agreement These purchases will represent a significant portion of our expected handset purchases and sales over that period.
Registration Rights Agreement. We have entered into registration rights agreements with S.B. Israel Telecom, our principal shareholder, in which we granted our principal shareholders the right to require us to register ordinary shares held by them under the US Securities Act. See “Item 7B.2 REGISTRATION RIGHTS”.
Network upgrade and deployment of fourth generation network. In October 2010, we entered into an agreement with Ericsson for the upgrade of our existing networks and the deployment of our fourth generation network in Israel for an initial term that ended at the end of 2014. We extended with certain modifications, the maintenance period by additional periods until the end of 2019. See "Item 4B.8g Suppliers" and “Item 5A.1g Agreement for the Upgrade of Our Existing Networks and the Deployment of Fourth Generation Network in Israel”. TI Sparkle Israel (formerlyMed Nautilus) Agreement. We have an agreement with TI Sparkle for the provision of international capacity services through submarine infrastructure, which connects countries bordering the Mediterranean Sea to all major Western European countries and from there to the rest of the world until 2023 with an option to extend the agreement until 2030. Upgrade of LTE network. In January 2019, we entered into an agreement with Mavenir Systems Limited for the upgrade and improvement of the performance of our LTE network moving into virtualized architecture of the network, alongside new functionalities and capabilities, and preparation for 5G. See "Item 4B.8g Suppliers".
10D. Exchange Controls There are no Israeli government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance of dividends, interest or other payments to non-resident holders of our securities, including the availability of cash and cash equivalents for use by us and our wholly-owned subsidiaries, except or otherwise as set forth under “Item 10E Taxation.” Under Israeli law (and our Memorandum and Articles of Association), persons who are neither residents nor nationals of Israel may freely hold, vote and transfer ordinary shares in the same manner as Israeli residents or nationals. 10E. Taxation Israeli Tax Considerations The following discussion is not intended, and should not be construed, as legal or professional tax advice and should not be relied on any specific case since it does not exhaust all possible tax considerations. The following is a summary of the current tax laws of the State of Israel as they relate to us and to our shareholders (in relation to their investments in the Company) and also includes a discussion of the material Israeli tax consequences for persons purchasing our ordinary shares or ADSs, both referred to below as the “Shares”. To the extent that the discussion is based on legislation yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. This discussion is not intended and should not be construed as legal or professional tax advice and does not cover all possible tax considerations. Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our Shares, including, in particular, the effect of any foreign, state or local taxes.
Israeli Tax Reforms The “Tax Burden Distribution Law” legislation amendments (2011) that were published in December 2011, which became effective on January 1, 2012, abolished the reduction of income tax rates for corporations and individuals and increased, amongst other things, the corporate tax rate and the tax rates on individual’s dividend income. On July 27, 2013 following the Tax Burden Distribution Law, the Israeli Parliament approved The Law For the Change in National Priorities (Legislation Amendment to Achieving Budget Goals for years 2013 and 2014), 2013 (the “2013 Amendment”). On January 4, 2016, the Israeli Parliament approved an amendment for the Israeli tax Ordinance (Number 216), according to which corporate tax rate will be updated for 2016 (the “2016 Amendment”). On December 29, 2016, the Israeli Parliament passed the Israeli Economic Recuperation Law (legislated amendments to achieve implementation of the Economic Policy for the budget years 2017-2018), which, amongst other things, reduced the regular corporate tax rate, and changed the requirement regarding surplus tax. General Corporate Tax Structure Israeli companies are generally subject to corporate tax on their taxable income (including capital gains). In general, the regular corporate tax rate in Israel for 2014 and 2015 was 26.5%, for 2016 was 25%, for 2017 was 24% and 23% for 2018 and thereafter.
Tax on Capital Gains of Shareholders Israeli law generally imposes a capital gains tax on the sale of capital assets by residents of Israel as defined for Israeli tax purposes, and on the sale of capital assets located in Israel or the sale of direct or indirect rights to assets located in Israel, including on the sale of our Shares by some of our shareholders (see discussion below). The Israeli Income Tax Ordinance distinguishes between “Real Capital Gain” and “Inflationary Surplus”. Real Capital Gain is the excess of the total capital gain over Inflationary Surplus computed on the basis of the increase in the CPI between the date of purchase and the date of sale. In 2018,2019, the real capital gain accrued on the sale of our Shares was generally taxed at a rate of 23% for corporations (26.5% for 2014 and 2015, 25% for 2016, 24% for 2017 and 23% for 2018 and thereafter) and a rate of up to 25% for individuals. Additionally, if such individual shareholder is considered a “Significant Shareholder” at any time during the 12-month period preceding such sale (i.e., if such individual shareholder holds directly or indirectly, along with others, at least 10% of any means of control in the company, including, among other things, the right to receive profits of the company, voting rights, the right to receive the company’s liquidation proceeds and the right to appoint a director), the tax rate will be up to 30%. However, the foregoing tax rates will not apply to (i) dealers in securities;securities, whose income from the sale of securities is considered "business income"; and (ii) shareholders who have acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Inflationary surplus that accrued after December 31, 1993, is exempt from tax. Generally, a semi-annual detailed return, including a computation of the tax due should be submitted to the Israeli Tax Authorities and a tax advance amounting to the tax liability arising from the capital gain is payable. At the sale of traded securities, the aforementioned detailed return may not be submitted and the tax advance should not be paid, if all tax due was withheld at source according to applicable provisions of the Israeli Tax Ordinance and regulations promulgated thereunder. Capital gains are also reportable on annual income tax returns. Taxation of Israeli Residents The following is a summary of the most significant Israeli capital gains tax implications arising with respect to the sale of our Shares by shareholders who are not engaged in the business of trading in securities. Individuals As of January 1, 2012, a shareholder will generally be subject to tax at up to 25% rate on realized real capital gain (if the shareholder is a Significant Shareholder, as defined above, the tax rate will be up to 30%). To the extent that the shareholder claims a deduction of financing expenses, the gain will be subject to tax at a rate of 30% (until otherwise stipulated in bylaws that may be published in the future). Please note that an individual Israeli tax resident may be required to pay up to 47% (from 2017 and thereafter) on his yearly taxable income, subject to certain exceptions. In addition, as of January 1, 2013, an individual Israeli tax resident is required to pay an additional tax at the rate of 2% on his yearly taxable combined income from any source exceeding NIS 810,720 for 2015 and 803,520 for 2016. From 2017 the additional tax rate is 3% from an amount exceeding NIS 639,996,640,000, NIS 641,880 in 2018, and NIS 649,560 in 2019.2019 and NIS 651,600 in 2020. Corporations Shareholders who are corporations will be generally subject to tax at the corporate tax rate on the realized capital gain as described in “General Corporate Tax Structure” in Item 10E above. Different taxation rules may apply to shareholders who purchased the Shares prior to January 1, 2009, or prior to the listing on the Tel Aviv Stock Exchange or the Nasdaq Global Market. Such Shareholders should consult with their own tax advisors for the tax consequences upon sale. In general, a partnership will be a transparent entity for Israeli tax purposes and its partners will be subject to tax with respect to their share in accordance with each of their applicable tax status and rates.
In general, under the Israel Tax Ordinance, public institutions are exempt from tax. Taxation of Non-Israeli Residents As mentioned above, Israeli law generally imposes a capital gains tax on sales of capital assets, including securities and any other direct or indirect rights to capital assets located in Israel. This tax is also applicable to non-Israeli residents of Israel as follows: Under Israeli law, the capital gain from the sale of shares by non-Israeli residents is tax exempt in Israel as long as our Shares are listed on the NASDAQ Global Select Market or any other stock exchange recognized by the Israeli Ministry of Finance (this condition shall not apply to shares purchased on or after January 1, 2009) and provided that certain other conditions are met, the most relevant of which are: (A) the capital gain is not attributed to the foreign resident’s permanent establishment in Israel, (B) the shares were acquired by the foreign resident after the company’s shares had been listed for trading on the foreign exchange, and (C) if the seller is a corporation, less than 25% of its means of control are held by Israeli residents. It should be noted that with respect to shares which are listed on the Israeli stock exchange market, a tax exemption may apply under certain different conditions. In addition, the sale of shares may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty (for example, please refer to the discussion below with respect to the Convention Between the Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income). Different taxation rules may apply to shareholders who purchased their shares prior to the listing on the Tel Aviv Stock Exchange. Such shareholders should consult with their tax advisors for the precise treatment upon sale. Taxation of Investors Engaged in a Business of Trading Securities Individual and corporate dealers in securities in Israel are taxed at tax rates applicable to business income. Withholding at Source from Capital Gains from Traded Securities The purchaser, the Israeli stockbrokers and any financial institution through which the sold securities are held, are obliged, subject to certain exemptions, to withhold tax on the amount of consideration paid with respect to such sale (or on the capital gain realized on the sale, if known) at the Israeli corporate tax rate as described in “General Corporate Tax Structure” in Item 10E above. Where the seller is an individual, the applicable withholding tax rate would be 25%, or 30% where the seller is a significant shareholder. Dividends The following Israeli tax consequences shall apply in the event of actual payment of any dividends on the Shares. As of January 1, 2012, dividends, other than bonus shares (stock dividends), paid to Israeli resident individuals who purchased our Shares will generally be subject to income tax at a rate of 25% for individuals, or 30% if the dividend recipient is a Significant Shareholder (as defined above) at any time during the 12-month period preceding such distribution. Dividends paid to Israeli resident companies will not be included in their tax liability computation. Non-residents of Israel (both individuals and corporations) are subject to income tax on income accrued or derived from sources in Israel, including dividends from Israeli corporations. The distribution of dividend income, other than bonus shares (stock dividends), to non-residents of Israel will generally be subject to income tax at a rate of 25% (or 30% for a shareholder that is considered a Significant Shareholder (as defined above) at any time during the 12-month period preceding such distribution), unless a lower rate is stipulated by a double tax treaty between the State of Israel and the shareholder’s country of residence. In addition, an additional tax at a rate of 3% may be imposed upon individual shareholders whose annual income from all sources that are taxable in Israel exceed a certain amount.
In the event of actual payment of any dividends on our Shares the following withholding rates will be applied: (i) Israeli resident corporations – 0%, (ii) Israeli resident individuals – 25% (iii) non-Israeli residents – 25%, subject to a reduced tax rate under an applicable double tax treaty; (iv) Israeli resident individual who is a Significant Shareholder – 30%; and (v) non -Israeli resident who is a Significant Shareholder – 30%, subject to a reduced tax rate under an applicable double tax treaty. Nevertheless, if the Shares are held through a Nominee Company, as defined in the Israel Securities Act, the withholding tax rate for shareholders under (iv) and (v) above shall be 25% (subject to a reduced tax rate under an applicable double tax treaty for non-Israeli residents). A non-resident of Israel that has received a dividend income derived from an Israeli corporation, from which tax was withheld at the source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided that such income was not connected to or derived from a trade or business conducted in Israel by such person.a person and provided the person has no other taxable sources of income in Israel with respect to which a tax return is required to be filed. Repatriation Non-residents of Israel who acquire any of the Shares of the Company will be able to repatriate dividends, liquidation distributions and the proceeds from the sale of such shares in non-Israeli currencies at the rate of exchange prevailing at the time of repatriation provided that any applicable Israel income tax has been paid, or withheld, on such amounts. US holders should refer to the “United States Federal Income Considerations” section below with respect to the US federal income tax treatment of foreign currency gain or loss. The foregoing discussion is intended only as a summary and does not purport to be a complete analysis or listing of all potential Israeli tax effects of holding of our shares. We recommend that shareholders consult their tax advisors concerning the Israeli and non-Israeli tax consequences to them of holding our shares. Taxation of Residents of the United States under the US Treaty Residents of the United States generally will be subject to withholding tax in Israel on dividends paid, if any, on Shares (including ADSs). Generally, under the Convention Between the Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income (the “US Treaty”), the maximum rate of withholding tax on dividends paid to a holder of Shares (including ADSs) who is a resident of the United States (as defined in the US Treaty) will be 25%. Under the US Treaty, the withholding tax rate on dividends will be reduced to 12.5% if (i) the shareholder is a U.S. resident corporation which holds during the portion of the taxable year which precedes the date of payment of the dividend, and during the whole of its prior taxable year, at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and (ii) not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year consists of certain types of interest or dividends. The US Treaty exempts from taxation in Israel any capital gains realized on the sale, exchange or other disposition of Shares (including ADSs) provided that the following cumulative conditions are met: (a) the seller is a resident of the United States for purposes of the US Treaty; (b) the seller owns, directly or indirectly, less than 10% of our voting stock at all times during the 12-month period preceding such sale, exchange or other disposition; (c) the seller, being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (d) the capital gain from the sale was not generated through a permanent establishment of the seller in Israel. Subject to the exemptions from capital gains prescribed in the Israeli Income Tax Ordinance (as described above), purchasers of Shares (including ADSs) who are residents of the United States and who hold 10% or more of the outstanding Shares at any time during such 12-month period will be subject to Israeli capital gains tax. However, under the US Treaty, residents of the United States (as defined in the US Treaty) generally would be permitted to claim a credit for this tax against US federal income tax imposed on the sale, exchange or other disposition, subject to the limitations in US laws applicable to the utilization of foreign tax credits generally. The application of the US Treaty provisions to dividends and capital gains described above is conditioned upon the fact that such income is not effectively connected with a permanent establishment (as defined in the US Treaty) maintained by the non-Israeli resident in Israel. United States Federal Income Tax Considerations The following discussion is a summary of certain material US federal income tax considerations applicable to a US holder (as defined below) regarding the acquisition, ownership and disposition of Shares or ADSs. This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed US Treasury regulations, administrative pronouncements, rulings and judicial decisions as of the date of this annual report.Annual Report. All of these authorities are subject to change, possibly with retroactive effect, and to change or changes in interpretation. In addition, this summary does not discuss all aspects of US federal income taxation that may be applicable to investors in light of their particular circumstances or to investors who are subject to special treatment under US federal income tax law, including US expatriates, insurance companies, banks, regulated investment companies, securities broker-dealers, financial institutions, tax-exempt organizations, persons holding Shares or ADSs as part of a straddle, hedging or conversion transaction, persons subject to the foreign tax credit splitting events rules, persons subject to the alternative minimum tax, persons who acquired their Shares or ADSs pursuant to the exercise of employee stock options or otherwise as compensation, US holders having a functional currency other than the US dollar, persons owning (directly, indirectly or by attribution) 10% or more of our outstanding share capital or voting stock and persons not holding the Shares or ADSs as capital assets. This discussion also does not address the consequences of the Medicare tax on net investment income or any aspect of state, local or non-US tax law or any other aspect of US federal taxation other than income taxation. As used herein, the term “US holder” means a beneficial owner of an ordinary share or an ADS who is eligible for benefits as a US resident under the limitation on benefits article of the US Treaty (as defined above in “–Taxation of Residents of the United States under the US Treaty”), and is: a citizen or individual resident of the United States for US federal income tax purposes; a corporation (or an entity taxable as a corporation for US federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; an estate whose income is subject to US federal income taxation regardless of its source; or a trust if (A) a US court is able to exercise primary supervision over the trust’s administration and (B) one or more US persons have the authority to control all of the trust’s substantial decisions. If a partnership, or other entity or arrangement treated as a partnership for US federal income tax purposes, holds Shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partnership or a partner in a partnership that holds Shares or ADSs is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of Shares or ADSs. For US federal income tax purposes, US holders of ADRs will be treated as owners of the ADSs evidenced by the ADRs and the Shares represented by the ADSs. Furthermore, deposits or withdrawals by a US holder of Shares for ADSs, or of ADSs for Shares, will not be subject to US federal income tax. The statement of US federal income tax law set forth below assumes that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.US holders should review the summary above under “Israeli Tax Considerations” and “Taxation of Residents of the United States under the US Treaty” for a discussion of the Israeli taxes which may be applicable to them. Holders of Shares or ADSs should consult their own tax advisors concerning the specific Israeli, US federal, state and local tax consequences of the ownership and disposition of the Shares or ADSs in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. In particular, US holders are urged to consult their own tax advisors concerning whether they will be eligible for benefits under the US Treaty.
Dividends A US holder generally will be required to include in gross income as ordinary dividend income the amount of any distributions paid on the Shares and ADSs, including the amount of any Israeli taxes withheld in respect of such dividend. Dividends paid by us will not qualify for the dividends-received deduction applicable in certain cases to US corporations. The amount of any distribution paid in NIS, including the amount of any Israeli withholding tax thereon, will be included in the gross income of a US holder of Shares in an amount equal to the US dollar value of the NIS calculated by reference to the spot rate of exchange in effect on the date the distribution is received by the US holder or, in the case of ADSs, by the Depositary. If a US holder converts dividends paid in NIS into US dollars on the day such dividends are received, the US holder generally should not be required to recognize foreign currency gain or loss with respect to such conversion. If the NIS received in the distribution are not converted into US dollars on the date of receipt, any foreign currency gain or loss recognized upon a subsequent conversion or other disposition of the NIS will be treated as US source ordinary income or loss. Special rules govern and special elections are available to accrual method taxpayers to determine the US dollar amount includible in income in the case of taxes withheld in a foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the requirements and the elections applicable in this regard. Dividends paid with respect to Shares may be subject to rules applicable where US persons own or are treated as owning 50% or more (by vote or value) of a foreign corporation, and such rules could adversely affect the US shareholders’ ability to use US foreign tax credits. Any dividends paid by us to a US holder on the Shares or ADSs will be treated as foreign source income and generally will be categorized as “passive income” for US foreign tax credit purposes. Subject to the limitations in the Code, as modified by the US Treaty, a US holder may elect to claim a foreign tax credit against its US federal income tax liability for Israeli income tax withheld from dividends received in respect of Shares or ADSs. US holders who do not elect to claim the foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only for a year in which the US holder elects to do so with respect to all foreign income taxes. A deduction does not reduce US tax on a dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the limitations applicable to foreign tax credits. The rules relating to the determination of the foreign tax credit are complex. Accordingly, if you are a US holder of Shares or ADSs, you should consult your own tax advisor to determine whether and to what extent you would be entitled to the credit. Certain US holders (including individuals) are eligible for reduced rates of US federal income tax in respect of “qualified dividend income”. For this purpose, qualified dividend income generally includes dividends paid by a non-US corporation if, among other things, the US holders meet certain minimum holding period requirements and the non-US corporation satisfies certain requirements, including that either (i) the shares (or ADSs) with respect to which the dividend has been paid are readily tradable on an established securities market in the United States, or (ii) the non-US corporation is eligible for the benefits of a comprehensive US income tax treaty (such as the US Treaty) which provides for the exchange of information. We currently believe that dividends paid with respect to our Shares and ADSs should constitute qualified dividend income for US federal income tax purposes. We anticipate that our dividends will be reported as qualified dividends on Forms 1099-DIV delivered to US holders. In computing foreign tax credit limitations, non-corporate US Holders may take into account only a portion of a qualified dividend to reflect the reduced US tax rate applicable to such dividend. Individual US holders of Shares or ADSs are urged to consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of their own particular situation and regarding the computations of their foreign tax credit limitation with respect to any qualified dividend income paid by us, as applicable. Sale, Exchange or Other Taxable Disposition Upon the sale, exchange or other taxable disposition of Shares or ADSs, a US holder generally will recognize capital gain or loss equal to the difference between the US dollar value of the amount realized on the sale, exchange or other taxable disposition and the US holder’s adjusted tax basis, determined in US dollars, in the Shares or ADSs. Any gain or loss recognized upon the sale, exchange or other taxable disposition of the Shares or ADSs will be treated as long-term capital gain or loss if, at the time of the sale, exchange or other taxable disposition, the holding period of the Shares or ADSs exceeds one year. In the case of individual US holders, capital gains generally are subject to US federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses by a US holder is subject to significant limitations. US holders should consult their own tax advisors in this regard.
In general, gain or loss recognized by a US holder on the sale, exchange or other taxable disposition of Shares or ADSs will be US source income or loss for US foreign tax credit purposes. Pursuant to the US Treaty, however, gain from the sale or other taxable disposition of Shares or ADSs by a holder who is a US resident, for US Treaty purposes, and who sells the Shares or ADSs within Israel may be treated as foreign source income for US foreign tax credit purposes. US holders who hold Shares or ADSs through an Israeli stockbroker or other Israeli intermediary may be subject to an Israeli withholding tax on any capital gains recognized if the US holder does not obtain approval of an exemption from the Israeli Tax Authorities. See “Israeli Tax Considerations” above. US holders are advised that any Israeli tax paid under circumstances in which an exemption from such tax was available will not give rise to a deduction or credit for foreign taxes paid for US federal income tax purposes. US holders are advised to consult their Israeli stockbroker or intermediary regarding the procedures for obtaining an exemption. If a US holder receives NIS upon the sale of Shares, that US holder may recognize ordinary income or loss as a result of currency fluctuations between the date of the sale of the Shares and the date the sales proceeds are converted into US dollars. Passive Foreign Investment Company Rules A non-US corporation will be classified as a Passive Foreign Investment Company (a “PFIC”) for any taxable year if (i) at least 75% of its gross income consists of passive income (such as dividends, interest, rents, royalties (other than rents or royalties derived in the active conduct of a trade or business and received from an unrelated person) and gains on the disposition of certain minority interests) or (ii) at least 50% of the average value of its assets consist of assets that produce or are held for the production of, passive income. We currently believe that we were not a PFIC for the year ended December 31, 2018.2019. However, this conclusion is a factual determination that must be made at the close of each year and is based on, among other things, a valuation of our Shares, ADSs and assets, which will likely change from time to time. If we were characterized as a PFIC for any taxable year, a US holder would suffer adverse tax consequences. These consequences may include having the gains that are realized on the disposition of Shares or ADSs treated as ordinary income rather than capital gains and being subject to punitive interest charges with respect to certain dividends and gains and on the sale or other disposition of the Shares or ADSs. Furthermore, dividends paid by a PFIC are not eligible to be treated as “qualified dividend income” (as discussed above). In addition, if a US holder holds Shares or ADSs in any year in which we are treated as a PFIC, such US holder will be subject to additional tax form filing and reporting requirements. Application of the PFIC rules is complex. US holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership of our Shares or ADSs. Information Reporting and Backup Withholding Dividend payments with respect to Shares or ADSs and proceeds from the sale, exchange or other disposition of Shares or ADSs may be subject to information reporting to the Internal Revenue Service (the “IRS”) and possible US backup withholding at a current rate of 24%. Backup withholding will not apply, however, to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding. US persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-US holders generally will not be subject to US information reporting or backup withholding. However, such holders may be required to provide certification of non-US status (generally on IRS Form W-8BEN or IRS W-8BEN-E) in connection with payments received in the United States or through certain US-related financial intermediaries.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s US federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely fashion. In addition, certain US holders who are individuals that hold certain foreign financial assets as defined in the Code (which may include Shares or ADSs) are required to report information relating to such assets, subject to certain exceptions. 10F. Dividends and Paying Agents Not applicable. 10G. Statement By Experts Not applicable.
10H. Documents on Display Reports and other information of Partner filed electronically with the US Securities and Exchange Commission may be found at www.sec.gov. They can also be inspected without charge and copied at prescribed rates at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549.
10I. Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11A. General We are exposed to market risk, including movements in foreign currency exchange and inflation-indexed interest rates. We do not enter into any derivative transactions to hedge underlying exposure to foreign currencies. As a matter of policy, we do not enter into transactions of a speculative or trading nature. Interest rate and foreign exchange exposures are monitored by tracking actual and projected commitments and through the use of sensitivity analysis. The following table provides information derived from the financial statements about these liabilities as of December 31, 20172018 and 2018. 2019.
Non-Derivative Instruments
| | As of December 31, (NIS equivalent in millions, except percentages) | | | As of December 31, (NIS equivalent in millions, except percentages) | | | | 2017 | | | 2018 | | | 2018 | | | 2019 | | | | Fair Value | | | Book Value | | | Fair Value | | | Book Value | | | Fair Value | | | Book Value | | | Fair Value | | | Book Value | | | | | | | | | | | | | | | | | | | | | | | | | | | NIS-denominated debt linked to the CPI (1) | | | | | | | | | | | | | | | | | | | | | | | | | Long-term fixed Notes payable series C due 2018 | | | 218 | | | | 213 | | | | | | | | | Weighted average interest rate payable | | | | | | | 3.35 | % | | | | | | | | Other payables (2) | | | * | | | | * | | | | | | | | | Trade payables (1) | | | | | | | | | 17 | | | 17 | | Lease liabilities | | | | | | | | | 619 | | | 613 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NIS-denominated debt not linked to the CPI | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term variable interest Notes payable series D due 2021 | | | 443 | | | | 435 | | | | 332 | | | | 327 | | | 332 | | | 327 | | | 219 | | | 218 | | Weighted average interest rate payable | | | | | | | 1.33 | % | | | | | | | 1.36 | % | | | | | 1.36 | % | | | | | 1.53 | % | Long-term fixed Notes payable series F due 2024 | | | 659 | | | | 650 | | | | 786 | | | | 794 | | | 786 | | | 794 | | | 1,040 | | | 1,021 | | Weighted average interest rate payable | | | | | | | 2.16 | % | | | | | | | 2.16 | % | | | | | 2.16 | % | | | | | 2.16 | % | Long-term borrowing bearing fixed interest | | | 75 | | | | 75 | | | | | | | | | | | Long-term fixed Notes payable series G due 2027 | | | | | | | | | 383 | | | 350 | | Weighted average interest rate payable | | | | | | | 3.71 | % | | | | | | | | | | | | | | | | | | | 4 | % | Long-term borrowing bearing fixed interest | | | 200 | | | | 200 | | | | | | | | | | | 120 | | | 118 | | | 90 | | | 89 | | Weighted average interest rate payable | | | | | | | 4.25 | % | | | | | | | | | | | | | 2.38 | % | | | | | 2.38 | % | Long-term borrowing bearing fixed interest | | | 110 | | | | 100 | | | | | | | | | | | 127 | | | 125 | | | 105 | | | 102 | | Weighted average interest rate payable | | | | | | | 4.34 | % | | | | | | | | | | | | | 2.5 | % | | | | | 2.5 | % | Long-term borrowing bearing fixed interest | | | 125 | | | | 125 | | | | 120 | | | | 118 | | | Weighted average interest rate payable | | | | | | | 2.38 | % | | | | | | | 2.38 | % | | Long-term borrowing bearing fixed interest | | | 125 | | | | 125 | | | | 127 | | | | 125 | | | Weighted average interest rate payable | | | | | | | 2.5 | % | | | | | | | 2.5 | % | | Trade payables and others (2) | | | 721 | | | | 721 | | | | 645 | | | | 645 | | | Trade payables and others (1)
| | | 645 | | | 645 | | | 577 | | | 577 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt denominated in foreign currencies (2) | | | | | | | | | | | | | | | | | | Debt denominated in foreign currencies (1) | | | | | | | | | | | | | | Trade payables denominated in USD | | | 143 | | | | 143 | | | | 126 | | | | 126 | | | 126 | | | 126 | | | 194 | | | 194 | | Trade payables denominated in other foreign currencies (mainly Euro) | | | 32 | | | | 32 | | | | 14 | | | | 14 | | | 14 | | | 14 | | | 12 | | | 12 | | Lease liabilities denominated in USD | | | | | | | | | | | | 4 | | | | 4 | | Total | | | 2,852 | | | | 2,819 | | | | 2,151 | | | | 2,149 | | | | 2,151 | | | | 2,149 | | | | 3,260 | | | | 3,197 | |
(*) Representing an amount of less than NIS 1 million(1) Book value approximates fair value.
(1) | Amounts due for payment of principal and interest are adjusted according to the CPI. See “Item 5B Liquidity and Capital Resources”. |
(2) | Book value approximates fair value. |
11B. Foreign Exchange and Inflation Substantially all of our revenues and a majority of our operating expenses are denominated in NIS. However, in 2018,2019, approximately one quarter of our operating expenses (excluding depreciation), including a substantial majority of our device and equipment purchases related to end sales to customers, were linked or denominated to non-NIS currencies, mainly the US dollar. These expenses related mainly to the acquisition of handsets and other equipment where the price paid by us is based on various foreign currencies, mainly the US dollar. We do not enter into derivative transactions and thus we are exposed to the aforementioned foreign currency fluctuations. We do not hold or issue derivative financial instruments for trading purposes. In addition, a substantial amount of our capital expenditures are incurred in, or linked to, non-NIS currencies, mainly the US dollar. See note 6 to the consolidated financial statements for description of the market risks. As of December 31, 2018, some2019, most of our operating leases are linked to the CPI. We may not be able to raise our tariffs pursuant to our license in a manner that would fully compensate for a significant increase in the CPI. Therefore, a significant increase in the rate of inflation may also have a material adverse impact upon us by increasing our finance expenseslease payments without an offsetting increase in revenue. In 2018,2019, the CPI effective as of December 31, 2018,2019, increased by 1.2%0.3%, compared to the CPI effective as of December 31, 2017,2018, which caused expenses of approximately NIS 32 million in finance costs, net, mainly by our CPI linked Note payble series C which was fully repaid in 2018 end.net. See note 24 to the consolidated financial statements.
Sensitivity analysis A change of the USD exchange rate as at December 31, 2018,2019, would increase (decrease) equity and profit in 20182019 by the amounts shown below as regards assets and liabilities as of December 31, 2018,2019, and expected capital expenditure purchases in 2019.2020. The analysis below does not take into account the effect of any change in USD with respect to possible future commitments and other future expected purchases in US dollars, since the Company believes that it will be able to adjust NIS prices for goods and services it sells in the Israeli market to reflect any significant increases in cost resulting from changes in the NIS-USD exchange rate. This analysis assumes that all other variables remain constant. | | Change | | | Equity | | | Profit | | | Change | | | Equity | | | Profit | | | | | | | New Israeli Shekels in millions | | | | | | New Israeli Shekels in millions | | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | | | | | | | | | | December 31, 2019 | | | | | | | | | | | Increase in the USD of | | | 10 | % | | | (8 | ) | | | (8 | ) | | 10 | % | | (12 | ) | | (12 | ) | Decrease in the USD of | | | (10 | )% | | | 8 | | | | 8 | | | (10 | )% | | 12 | | | 12 | |
153
A change of the CPI as at December 31, 2019, would increase (decrease) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. | | Change | | | Equity | | | Profit | | | | | | | New Israeli Shekels in millions | | | | | | | | | | | | December 31, 2019 | | | | | | | | | | Increase in the CPI of | | | 2 | % | | | (10 | ) | | | (10 | ) | Decrease in the CPI of | | | (2 | )% | | | 10 | | | | 10 | |
11C. Interest rates Since one of our notes payable bearbears variable interest rate, changes in interest rates cause cash flow risks. As of December 31, 2018,2019, our Notes payable series D in a principal amount of NIS 327218 million bear variable rates of interest.interest rate. Sensitivity analysis An increase (decrease) of 1% in the interest ratesrate during 20182019 in respect of our notes payable bearing variable interest would have resulted in an annual increase (decrease) in interest expenses (income) of NIS 43 million. This analysis assumes that all other variables remain constant. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Fees and charges payable by ADR holders Citibank serves as the depositary (the “Depositary”) for our American Depositary Receipt (“ADR”) program. Pursuant to the deposit agreement between the Company, the Depositary and owners and holders of ADRs (the “Deposit Agreement”), ADR holders may be required to pay various fees to the Depositary. In particular, the Depositary, under the terms of the Deposit Agreement, may charge the following fees: (i) Issuance Fee: to any person depositing shares or to whom ADSs are issued upon the deposit of shares, a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) (excluding issuances as a result of distributions described in paragraph (iv) below); (ii) Cancellation Fee: to any person surrendering ADSs for cancellation and withdrawal of deposited securities or to any person to whom deposited securities are delivered, a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) surrendered;(iii) Cash Distribution Fee: to any holder of ADS(s), a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) held for the distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements); (iv) Stock Distribution/Rights Exercise Fee: to any holder of ADS(s), a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) held for (a)stock dividends or other free stock distributions or (b)exercise of rights to purchase additional ADSs; (v) Other Distribution Fee: to any holder of ADS(s), a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) held for the distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares); and (vi) Depositary Services Fee: to any holder of ADS(s), a fee not in excess of $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary. The parties agreed to allow Citibank to charge an additional $1.00 per 100 ADSs (a fee not in excess of $6.00 in aggregate) in the event that the Company does not pay cash or stock dividends.
Owners, beneficial owners, persons depositing shares and persons surrendering ADSs for cancellation and for the purpose of withdrawing deposited securities shall be responsible for the following charges: (a) taxes (including applicable interest and penalties) and other governmental charges; (b) such registration fees as may from time to time be in effect for the registration of shares or other deposited securities on the share register and applicable to transfers of shares or other deposited securities to or from the name of the custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively; (c) such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing or withdrawing shares or owners and beneficial owners of ADSs; (d) the expenses and charges incurred by the Depositary in the conversion of foreign currency; (e) such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Shares, deposited securities, ADSs and receipts; and (f) the fees and expenses incurred by the Depositary, the Custodian, or any nominee in connection with the delivery or servicing of deposited securities. Amounts received from the Depository During 2018,2019, the Company received from Citibank payments in the amount of approximately $163,778.$140,485. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS None. ITEM 15. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. Our management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2018.2019. Disclosure controls and procedures means controls and other procedures designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Nevertheless, our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures in place as of December 31, 2018,2019, were effective.
(b) Management’s Report on Internal Control over Financial Reporting. Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect our transactions during the year; provide reasonable assurance that our transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles; provide reasonable assurance that our receipts and expenditures are made only in accordance with authorizations of our management and Board of Directors (as appropriate); and provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Due to its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018,2019, based on the framework for Internal Control-Integrated Framework (2013) set forth by The Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2018.2019. Our internal control over financial reporting as of December 31, 2018,2019, has been audited by Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited, as stated in their report which is included under Item 18. (c) Attestation report of the registered public accounting firm. The attestation report of Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited, regarding the Company’s internal control over financial reporting is included under Item 18. (d) Changes in Internal Control Over Financial Reporting. During the year ended December 31, 2018,2019, no changes materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting, except for the addition of controls for the application of IFRS 16. 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Board of Directors has determined that Mr. Barry Ben-Zeev, Mr. Jonathan Kolodny and Mr. Arik Steinberg are “audit committee financial experts” as defined in Item 16A of Form 20-F. All the members of the audit committee are “independent directors” as defined in the SEC requirements applicable to us.
In 2016,2019, we reviewed and updated our Code of Ethics. As previously, the revised Code of Ethics applies to our directors, office holders and employees. The principal modifications to our Code of Ethics adopted in 20162019 include: our commitment to community and environment protection, rules of conduct on social media, an updated statement setting forth the values underlying the Code of Ethics following the rebranding of our products and services and an updated detailed guide to appropriate behavior toward interested parties, including customers, suppliers, employees, directors, shareholders, franchisers and the community in which the Company operates. A copy of our Code of Ethics is posted on our website at www.partner.co.il under “Investor Relations-Corporate Governance-Code of Ethics”. 16C.16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Kesselman & Kesselman, our independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited (“PwC”), have served as our independent public accountants for each of the fiscal years in the three-year period ended December 31, 2018,2019, for which audited financial statements appear in this annual reportAnnual Report on Form 20-F. The following table presents the aggregate fees for professional services rendered by PwC to Partner in 20172018 and 2018.2019. | | 2017 | | | 2018 | | | 2018 | | | 2019 | | | | (NIS thousands) | | | (NIS thousands) | | | (NIS thousands) | | | (NIS thousands) | | | | | | | | | | | | | | | Audit Fees (1) | | | 2,483 | | | | 2,260 | | | 2,260 | | | 2,200 | | Audit-related Fees (2) | | | 402 | | | | 868 | | | 868 | | | 210 | | Tax Fees (3) | | | 585 | | | | 753 | | | | 753 | | | | 491 | | TOTAL | | | 3,470 | | | | 3,881 | | | 3,881 | | | 2,901 | |
(1) | Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the group audit; statutory audits; comfort letters and consents; and assistance with and review of documents filed with the SEC. |
(2) | Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and include consultations concerning financial accounting and reporting standards, as well as the purchase of an accounting data base. |
(3) | Tax Fees include fees billed for tax compliance services, including the preparation of tax returns and claims for tax refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, and requests for rulings or technical advice from taxing authority. |
Audit Committee Pre-approval Policies and Procedures Our audit committee’s specific responsibilities in carrying out its oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company include the approval of audit and non-audit services to be provided by the external auditor. The audit committee approves in advance the particular services or categories of services to be provided to the Company during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional non-audit services may be pre-approved by the audit committee.
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES During 2018, the Company repurchased 6,501,588 shares of the Company, at a total cost of NIS 100 million (upon repurchase were recorded as "treasury shares"). In accordance with the Israeli Companies Law, the treasury shares are considered dormant shares as long as they are held by the Company, and as such they do not bear any rights (including the right to vote in general meetings of shareholders and to receive dividends) until they are transferred to a third party. Some of the treasury shares were offered to employees under a share based compensation plan: Company's Equity Incentive Plan as restricted share awards ("RSAs"). See also “Item 6E.2 EQUITY INCENTIVE PLAN".Not applicable
16F. CHANGE IN REGISTRANT’S CERTIFYING ACOUNTANT Not applicable. 16G. CORPORATE GOVERNANCE See “Item 6C.5 NASDAQ Corporate Governance Rules and Our Practices”, and also “Item 10B Memorandum and Articles of Association”. ITEM 17. FINANCIAL STATEMENTS The company has responded to “Item 18. Financial Statements” in lieu of responding to this item. ITEM 18. FINANCIAL STATEMENTS The following financial statements are filed as part of this annual report.Annual Report. | Page | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-3-F-4 | CONSOLIDATED FINANCIAL STATEMENTS: | | Statements of Financial Position | F5-F-6 | Statements of Income | F-7 | Statements of Comprehensive Income | F-8 | Statements of Changes in Equity | F-9 | Statements of Cash Flows | F-10-F-11 | Notes to financial statements | F-12-F-92F-12-F-94 |
Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed certain agreements as exhibits to this annual reportAnnual Report on Form 20-F. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.
Exhibit No. |
| Description | | | | |
| | **1.2 | | Partner’s Certificate of Incorporation | **1.3 | | Partner’s Memorandum of Association | **2.(a).1 | | Form of Share Certificate | ^^2.(a).2 | | [Reserved] | |
| | ^2.(b).1 | | [Reserved] | >>>>2.(b).2 | | [Reserved] | >>>>2.(b).3 | | [Reserved] | |
| | >>>>4.(a).1.1 | | [Reserved] | | | [Reserved] | | | |
| | |
| | | | [Reserved] | | | [Reserved] | | | Reserved] | **4.(a).4 | | [Reserved] | +>4.(a).4.1 | | [Reserved] | 4.(a).4.2 | | [Reserved] | **4.(a).5 | | Brand Support/Technology Transfer Agreement dated July 18, 1999 | **4.(a).6 | | Agreement with Ericsson Radio Systems AB dated May 28, 1998 |
#++4.(a).7 | | Agreement with LM Ericsson Israel Ltd. dated November 25, 2002 | **4.(a).9 | | Lease Agreement with Mivnei Taasia dated July 2, 1998 | |
| | 4.(a).14-60 | | [Reserved] | +++4.(a).65 | | [Reserved] | |
| | 4.(a).68 | | [Reserved] | >>>>4.(a).69 | | [Reserved] | 4.(a).70 | | [Reserved] | 4.(a).71 | | [Reserved] | |
| | |
| | 4.(a).74-97 | | [Reserved] | |
| | | >>>>4.(b).2 | | [Reserved] | | | | | [Reserved] | +>>6. | | See note 2x to the consolidated financial statements for information explaining how earnings (loss) per share information was calculated. | |
| | | | | |
| | | | | | | | | | | |
| | |
| |
** | | Incorporated by reference to our registration statement on Form F-1 (No. 333-10992). | ++ | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2002. | +++ | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2003. | ^ | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004. | ^^ | | Incorporated by reference to our registration statement on Form F-6 (No. 333-132680). | ^^^ | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2005. | ^^^^ | | Incorporated by reference to our registration statement on Form F-6 (No. 333-177621). | > | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2006. | | >> | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2007. | >>>> | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2009. | >>>>> | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2010. | +> | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2011. | +>> | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2012. | +>>> | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2013. | +>>>> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2014. | | +>>>>> | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2015. | ++** | | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2016 | # | | Confidential treatment requested. |
Confidential material has been redacted and has been separately filed with the Securities and Exchange
SIGNATURES The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual reportAnnual Report on its behalf.
| | | | Partner Communications Company Ltd. | | | | | | By: /s/ Isaac Benbenisti | | | Isaac Benbenisti | | | Chief Executive Officer | | | | | | March 27, 201926, 2020 | | | | | | By: /s/ Tamir Amar | | | Tamir Amar | | | Chief Financial Officer | | | | | | March 27, 201926, 2020 | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) 20182019 ANNUAL REPORT
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) 20182019 ANNUAL REPORT
TABLE OF CONTENTS
| Page | | F - 3 - F - 4-4 | CONSOLIDATED FINANCIAL STATEMENTS: | | | F - 5-5 - F - 6-6 | | F - 7 | | F - 8 | | F - 9 | | F - 10-10 - F - 11-11 | | F - 12-12 - F - 92-94 |
The amounts are stated in New Israeli Shekels (NIS) in millions.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the board of directors and shareholders of PARTNER COMMUNICATIONS COMPANY LTD.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial positionbalance sheets of Partner Communications Company Ltd. and its subsidiaries (the(the “Company”) as of December 31, 20182019 and 2017,2018, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for eacheach of the three years in the period ended December 31, 2018,2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company'sCompany’s internal control over financial reporting as of December 31, 2018,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,December 31, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2(o) to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,, included in ""Management’sManagement's Report on Internal Control over Financial Reporting"Reporting" appearing under Item 15(b).15b. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Kesselman & Kesselman Certified Public Accountants (Isr.) A member firm of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel March 26, 201925, 2020
We have served as the Company’s auditor since 1998.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | | | | | | | | Convenience translation into U.S. dollars (note 2b3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CURRENT ASSETS | | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | 416 | | | | 299 | | | | 87 | | Short-term deposits | | | 6 | | | | | | | | 552 | | | | 160 | | Trade receivables | | | 7 | | | | 656 | | | | 624 | | | | 180 | | Other receivables and prepaid expenses | | | | | | | 33 | | | | 39 | | | | 11 | | Deferred expenses – right of use | | | 12 | | | | 51 | | | | 26 | | | | 7 | | Inventories | | | 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NON CURRENT ASSETS | | | | | | | | | | | | | | | | | Trade receivables | | | 7 | | | | 260 | | | | 250 | | | | 72 | | Deferred expenses – right of use | | | 12 | | | | 185 | | | | 102 | | | | 30 | | Lease – right of use | | | 19 | | | | | | | | 582 | | | | 168 | | Property and equipment | | | 10 | | | | 1,211 | | | | 1,430 | | | | 414 | | Intangible and other assets | | | 11 | | | | 617 | | | | 538 | | | | 156 | | Goodwill | | | 13 | | | | 407 | | | | 407 | | | | 118 | | Deferred income tax asset | | | 25 | | | | 38 | | | | 41 | | | | 12 | | Prepaid expenses and other assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL ASSETS | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million. | | | | | | | | Convenience translation into U.S. dollars (note 2b3) | | | | | | | December 31, | | | | | | | 2017 | | | 2018 | | | 2018 | | | | Note | | | In millions | | CURRENT ASSETS | | | | | | | | | | | | | Cash and cash equivalents | | | | | | 867 | | | | 416 | | | | 111 | | Short-term deposits | | | | | | 150 | | | | | | | | | | Trade receivables | | | 7 | | | | 808 | | | | 656 | | | | 175 | | Other receivables and prepaid expenses | | | | | | | 48 | | | | 33 | | | | 9 | | Deferred expenses – right of use | | | 12 | | | | 43 | | | | 51 | | | | 14 | | Inventories | | | 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NON CURRENT ASSETS | | | | | | | | | | | | | | | | | Trade receivables | | | 7 | | | | 232 | | | | 260 | | | | 69 | | Prepaid expenses and other | | | | | | | 5 | | | | 4 | | | | 1 | | Deferred expenses – right of use | | | 12 | | | | 133 | | | | 185 | | | | 49 | | Property and equipment | | | 10 | | | | 1,180 | | | | 1,211 | | | | 323 | | Intangible and other assets | | | 11 | | | | 697 | | | | 617 | | | | 164 | | Goodwill | | | 13 | | | | 407 | | | | 407 | | | | 109 | | Deferred income tax asset | | | 25 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL ASSETS | | | | | | | | | | | | | | | | |
** See Note 2 regarding the adoption of IFRS 16 - Leases.
The financial statements were authorized for issue by the board of directors on March 26, 2019.25, 2020.
| | | | | Isaac Benbenishti | | Tamir Amar | | Barry Ben-Zeev (Woolfson) | Chief Executive Officer | | Chief Financial Officer | | Director | | | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| | | | | | | | Convenience translation into U.S. dollars (note 2b3) | | | | | | | | | Convenience translation into U.S. dollars (note 2b3) | | | | | | | December 31, | | | | | | | | | | | | | 2017 | | | 2018 | | | 2018 | | | | | | | | | | | | | | | | | | Note | | | In millions | | | | | | | | CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | Current maturities of notes payable and borrowings | | | 6,15 | | | | 705 | | | | 162 | | | | 43 | | | 6,15 | | | 162 | | | 367 | | | 106 | | Trade payables | | | | | | | 787 | | | | 711 | | | | 190 | | | | | | 711 | | | 716 | | | 206 | | Payables in respect of employees | | | | | | | 91 | | | | 96 | | | | 26 | | | | | | 96 | | | 103 | | | 30 | | Other payables (mainly institutions) | | | | | | | 31 | | | | 10 | | | | 3 | | | | | | 10 | | | 23 | | | 7 | | Income tax payable | | | | | | | 50 | | | | 35 | | | | 9 | | | | | | 35 | | | 30 | | | 9 | | Lease liabilities | | | 19 | | | | | | 131 | | | 38 | | Deferred revenues from HOT mobile | | | 9,22 | | | | 31 | | | | 31 | | | | 8 | | | 9,22 | | | 31 | | | 31 | | | 9 | | Other deferred revenues | | | 22 | | | | 41 | | | | 41 | | | | 11 | | | 22 | | | 41 | | | 45 | | | 13 | | Provisions | | | 14 | | | | 75 | | | | 64 | | | | 17 | | | 14 | | | | | | | | | | | | | | | | | | | | | 1,811 | | | | 1,150 | | | | 307 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NON CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Notes payable | | | 6,15 | | | | 975 | | | | 1,013 | | | | 270 | | | 6,15 | | | 1,013 | | | 1,275 | | | 369 | | Borrowings from banks and others | | | 6,15 | | | | 243 | | | | 191 | | | | 51 | | | Borrowings from banks | | | 6,15 | | | 191 | | | 138 | | | 40 | | Financial liability at fair value | | | 6,15 | | | | | | 28 | | | 8 | | Liability for employee rights upon retirement, net | | | 16 | | | | 40 | | | | 40 | | | | 11 | | | 16 | | | 40 | | | 43 | | | 12 | | Dismantling and restoring sites obligation | | | 14 | | | | 27 | | | | 13 | | | | 3 | | | Lease liabilities | | | 19 | | | | | | 486 | | | 141 | | Deferred revenues from HOT mobile | | | 9,22 | | | | 164 | | | | 133 | | | | 35 | | | 9,22 | | | 133 | | | 102 | | | 30 | | Other non-current liabilities | | | 14,22 | | | | 24 | | | | 30 | | | | 8 | | | Provisions and other non-current liabilities | | | 14,22 | | | | | | | | | | | | | | | | | | | | | 1,473 | | | | 1,420 | | | | 378 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL LIABILITIES | | | | | | | 3,284 | | | | 2,570 | | | | 685 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EQUITY | | | 21 | | | | | | | | | | | | | | | 21 | | | | | | | | | | | Share capital – ordinary shares of NIS 0.01 par value: | Share capital – ordinary shares of NIS 0.01 par value: | | | | | | | | | | | | | | Share capital – ordinary shares of NIS 0.01 par value: | | | | | | | | | | | authorized – December 31, 2017 and 2018 – 235,000,000 | | | | | | | | | | | | | | | authorized – December 31, 2018 and 2019 – 235,000,000 | | authorized – December 31, 2018 and 2019 – 235,000,000 | | | | | | | | | | | shares; issued and outstanding - | shares; issued and outstanding - | | | | 2 | | | | 2 | | | | 1 | | shares; issued and outstanding - | | | 2 | | | 2 | | | 1 | | December 31, 2017 - **168,243,913 shares | | | | | | | | | | | | | | | December 31, 2018 - **162,628,397 shares | | | | | | | | | | | | | | | December 31, 2018 – -***162,628,397 shares | | December 31, 2018 – -***162,628,397 shares | | | | | | | | | | | December 31, 2019 – ***162,915,990 shares | | December 31, 2019 – ***162,915,990 shares | | | | | | | | | | | Capital surplus | | | | | | | 1,164 | | | | 1,102 | | | | 294 | | | | | | 1,102 | | | 1,077 | | | 311 | | Accumulated retained earnings | | | | | | | 491 | | | | 563 | | | | 150 | | | | | | 563 | | | 576 | | | 167 | | Treasury shares, at cost – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 - ***2,850,472 shares | | | | | | | | | | | | | | | | | | December 31, 2018 - ***8,560,264 shares | | | | | | | (223 | ) | | | (261 | ) | | | (70 | ) | | December 31, 2018 – ****8,560,264 shares | | | | | | | | | | | | | | December 31, 2019 – ****8,275,837 shares | | | | | | (261 | ) | | (238 | ) | | (69 | ) | Non-controlling interests | Non-controlling interests | | | | | | | | * | | | | * | | Non-controlling interests | | | | | | | | | | | | | | TOTAL EQUITY | | | | | | | 1,434 | | | | 1,406 | | | | 375 | | | | | | | | | | | | | | | | | TOTAL LIABILITIES AND EQUITY | | | | | | | 4,718 | | | | 3,976 | | | | 1,060 | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million. ** See Note 2 regarding the adoption of IFRS 16 - Leases. *** Net of treasury shares. **** Including shares held by trustee under the Company's Equity Incentive Plan, see note 21(a), such shares will become outstanding upon completion of vesting conditions, see note 21(b).
The accompanying notes are an integral part of the financial statements.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | Convenience | | | | | | | | | | | | | | | Convenience | | | | | | | | | | | | | | | | translation | | | | | | | | | | | | | | | translation | | | | | | | | | | | | | | | | into U.S. dollars | | | | | | | | | | | | | | | into U.S. dollars | | | | | | | New Israeli Shekels | | | (note 2b3) | | | | | | | | | | | | | | | | Year ended December 31 | | | | | | | | | | | | | 2016 | | | 2017 | | | 2018 | | | 2018 | | | | | | | | | | | | | | | | | | | | | Note | | | In millions (except earnings per share) | | | | | | In millions (except earnings per share) | | Revenues, net | | | 5, 22 | | | | 3,544 | | | | 3,268 | | | | 3,259 | | | | 870 | | | 5,22 | | | 3,268 | | | 3,259 | | | 3,234 | | | 936 | | Cost of revenues | | | 5, 22 | | | | 2,924 | | | | 2,627 | | | | 2,700 | | | | 720 | | | 5,22 | | | | | | | | | | | | | | | | | | Gross profit | | | | | | | 620 | | | | 641 | | | | 559 | | | | 150 | | | | | | 641 | | | 559 | | | 527 | | | 153 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and marketing expenses | | | 22 | | | | 426 | | | | 269 | | | | 293 | | | | 78 | | | 22 | | | 269 | | | 293 | | | 301 | | | 87 | | General and administrative expenses | | | 22 | | | | 181 | | | | 144 | | | | 148 | | | | 39 | | | 22 | | | 144 | | | 148 | | | 149 | | | 43 | | Credit losses | | | 7 | | | | 82 | | | | 52 | | | | 30 | | | | 8 | | | 7 | | | 52 | | | 30 | | | 18 | | | 5 | | Income with respect to settlement | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | agreement with Orange | | | 18 | | | | 217 | | | | 108 | | | | | | | | | | | 18 | | | 108 | | | | | | | | | | | Other income, net | | | 23 | | | | 45 | | | | 31 | | | | 28 | | | | 7 | | | 23 | | | | | | | | | | | | | | | | | | Operating profit | | | | | | | 193 | | | | 315 | | | | 116 | | | | 32 | | | | | | 315 | | | 116 | | | 87 | | | 26 | | Finance income | | | 24 | | | | 13 | | | | 4 | | | | 2 | | | | 1 | | | 24 | | | 4 | | | 2 | | | 7 | | | 2 | | Finance expenses | | | 24 | | | | 118 | | | | 184 | | | | 55 | | | | 16 | | | 24 | | | | | | | | | | | | | | | | | | Finance costs, net | | | 24 | | | | 105 | | | | 180 | | | | 53 | | | | 15 | | | 24 | | | | | | | | | | | | | | | | | | Profit before income tax | | | | | | | 88 | | | | 135 | | | | 63 | | | | 17 | | | | | | 135 | | | 63 | | | 19 | | | 6 | | Income tax expenses | | | 25 | | | | 36 | | | | 21 | | | | 7 | | | | 2 | | | 25 | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | 52 | | | | 114 | | | | 56 | | | | 15 | | | | | | | | | | | | | | | | | | | | | Attributable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Owners of the Company | | | | | | | 52 | | | | 114 | | | | 57 | | | | 15 | | | | | | 114 | | | 57 | | | 19 | | | 6 | | Non-controlling interests | | | | | | | | | | | | | | | (1 | ) | | | * | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | 52 | | | | 114 | | | | 56 | | | | 15 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings per share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | 27 | | | | 0.33 | | | | 0.70 | | | | 0.34 | | | | 0.09 | | | 27 | | | | | | | | | | | | | | | | | | Diluted | | | 27 | | | | 0.33 | | | | 0.69 | | | | 0.34 | | | | 0.09 | | | 27 | | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million. ** See Note 2 regarding the adoption of IFRS 16 - Leases.
The accompanying notes are an integral part of the financial statements.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | Convenience translation into U.S. dollars (note 2b3) | | |
| | | | | | Convenience translation into U.S. dollars (note 2b3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | 52 | | | | 114 | | | | 56 | | | | 15 | | | | | | 114 | | | 56 | | | 19 | | | 6 | | Other comprehensive income, items | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | that will not be reclassified to profit or loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Remeasurements of post-employment benefit | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | obligations | | | 16 | | | | (8 | ) | | | (2 | ) | | | 1 | | | | * | | | | 16 | | | (2 | ) | | 1 | | | (2 | ) | | (1 | ) | Income taxes relating to remeasurements of | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | post-employment benefit obligations | | | 25 | | | | | | | | | | | | | | | | | | | | 25 | | | | | | | | | | | | | | | | | | Other comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | for the year, net of income taxes | | | | | | | (6 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL COMPREHENSIVE INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | FOR THE YEAR | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income attributable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Owners of the Company | | | | | | | 46 | | | | 113 | | | | 58 | | | | 15 | | | | | | 113 | | | 58 | | | 17 | | | 5 | | Non-controlling interests | | | | | | | | | | | | | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | | | TOTAL COMPREHENSIVE INCOME FOR THE YEAR | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million. ** See Note 2 regarding the adoption of IFRS 16 - Leases.
The accompanying notes are an integral part of the financial statements.
| | Share capital | | | | | | | | | | | | | | | Non- | | | | | | | Number of | | | | | | Capital | | | Accumulated | | | Treasury | | | | | | controlling | | | | | | | Shares** | | | Amount | | | surplus | | | earnings | | | shares | | | Total | | | interests | | | Total equity | | | | | | | | | New Israeli Shekels: | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT JANUARY 1, 2016 | | | | | | | | | | | | | | | | | | | (351 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income for the year | | | | | | | | | | | | | | | 46 | | | | | | | | 46 | | | | | | | 46 | | Exercise of options and vesting of restricted shares granted to employees | | | 905,881 | | | | * | | | | (68 | ) | | | | | | | 68 | | | | * | | | | | | | * | | Employee share-based compensation expenses | | | | | | | | | | | | | | | 45 | | | | | | | | 45 | | | | | | | 45 | | BALANCE AT DECEMBER 31, 2016 | | | | | | | | | | | | | | | | | | | (283 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income for the year | | | | | | | | | | | | | | | 113 | | | | | | | | 113 | | | | | | | 113 | | Issuance of shares to shareholders (see note 21) | | | 10,178,211 | | | | * | | | | 190 | *** | | | | | | | | | | | 190 | | | | | | | 190 | | Exercise of options and vesting of restricted shares granted to employees | | | 1,072,365 | | | | | | | | (60 | ) | | | | | | | 60 | | | | | | | | | | | | | Employee share-based compensation expenses | | | | | | | | | | | | | | | 20 | | | | | | | | 20 | | | | | | | 20 | | BALANCE AT DECEMBER 31, 2017 | | | | | | | | | | | | | | | | | | | (223 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income for the year | | | | | | | | | | | | | | | 57 | | | | | | | | 57 | | | | (1 | ) | | | 56 | | Exercise of options and vesting of restricted shares granted to employees | | | 886,072 | | | | | | | | (62 | ) | | | | | | | 62 | | | | | | | | | | | | | | Employee share-based compensation expenses | | | | | | | | | | | | | | | 15 | | | | | | | | 15 | | | | | | | | 15 | | Acquisition of treasury shares (note 21) | | | (6,501,588 | ) | | | | | | | | | | | | | | | (100 | ) | | | (100 | ) | | | | | | | (100 | ) | Non-controlling interests on acquisition of subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 | | | | 1 | | BALANCE AT DECEMBER 31, 2018 | | | | | | | | | | | | | | | | | | | (261 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Convenience translation into U.S. Dollars (note 2b3): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT JANUARY 1, 2018 | | | | | | | | | | | | | | | | | | | (60 | ) | | | | | | | | | | | | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income for the year | | | | | | | | | | | | | | | 15 | | | | | | | | 15 | | | | * | | | | 15 | | Exercise of options and vesting of restricted shares granted to employees | | | 886,072 | | | | | | | | (17 | ) | | | | | | | 17 | | | | | | | | | | | | | | Employee share-based compensation expenses | | | | | | | | | | | | | | | 4 | | | | | | | | 4 | | | | | | | | 4 | | Acquisition of treasury shares (note 21) | | | (6,501,588 | ) | | | | | | | | | | | | | | | (27 | ) | | | (27 | ) | | | | | | | (27 | ) | Non-controlling interests on acquisition of subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | * | | | | | | BALANCE AT DECEMBER 31, 2018 | | | | | | | | | | | | | | | | | | | (70 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Non-controlling | | | | | | | Number of | | | | | | Capital | | | Accumulated | | | Treasury | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | New Israeli Shekels: | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT JANUARY 1, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income for the year | | | | | | | | | | | | | | | 113 | | | | | | | | 113 | | | | | | | 113 | | Issuance of shares to shareholders (see note 21) | | | 10,178,211 | | | | * | | | | ***190 |
| | | | | | | | | | | 190 | | | | | | | 190 | | Exercise of options and vesting of restricted shares granted to employees | | | 1,072,365 | | | | | | | | (60 | ) | | | | | | | 60 | | | | | | | | | | | | | Employee share-based compensation expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT DECEMBER 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | | | | | | | | | 56 | | | | | | | | 56 | | | | (1 | ) | | | 55 | | Other comprehensive income for the year, net of income taxes | | | | | | | | | | | | | | | 1 | | | | | | | | 1 | | | | | | | | 1 | | Exercise of options and vesting of restricted shares granted to employees | | | 886,072 | | | | | | | | (62 | ) | | | | | | | 62 | | | | | | | | | | | | | | Employee share-based compensation expenses | | | | | | | | | | | | | | | 15 | | | | | | | | 15 | | | | | | | | 15 | | Acquisition of treasury shares (note 21) | | | (6,501,588 | ) | | | | | | | | | | | | | | | (100 | ) | | | (100 | ) | | | | | | | (100 | ) | Non-controlling interests on acquisition of subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT DECEMBER 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adoption of IFRS 16 (notes 3 and 19) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT JANUARY 1, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | | | | | | | | | 19 | | | | | | | | 19 | | | | * | | | | 19 | | Other comprehensive income for the year, net of income taxes | | | | | | | | | | | | | | | (2 | ) | | | | | | | (2 | ) | | | | | | | (2 | ) | Exercise of options and vesting of restricted shares granted to employees | | | 287,593 | | | | | | | | (23 | ) | | | | | | | 23 | | | | | | | | | | | | | | Employee share-based compensation expenses | | | | | | | | | | | | | | | 17 | | | | | | | | 17 | | | | | | | | 17 | | Transactions with non-controlling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT DECEMBER 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Convenience translation into U.S. Dollars (note 2b3): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT DECEMBER 31 , 2018 | | | 162,628,397 | | | | 1 | | | | 319 | | | | 163 | | | | (76 | ) | | | 407 | | | | * | | | | 407 | | Adoption of IFRS 16 (notes 3 and 19) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT JANUARY 1, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CHANGES DURING THE YEAR ENDED DECEMBER 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | | | | | | | | | | 6 | | | | | | | | 6 | | | | * | | | | 6 | | Other comprehensive loss for the year, net of income taxes | | | | | | | | | | | | | | | (1 | ) | | | | | | | (1 | ) | | | | | | | (1 | ) | Exercise of options and vesting of restricted shares granted to employees | | | 287,593 | | | | | | | | (7 | ) | | | | | | | 7 | | | | | | | | | | | | | | Employee share-based compensation expenses | | | | | | | | | | | | | | | 5 | | | | | | | | 5 | | | | | | | | 5 | | Transactions with non-controlling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | BALANCE AT DECEMBER 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million. ** Net of treasury shares. *** Net of issuance costs.costs. The accompanying notes are an integral part of the financial statements.
(Continued)–- 1 PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | New Israeli Shekels | | | Convenience translation into U.S. dollars (note 2b3) | | | | | | | | | Convenience translation into U.S. dollars | | | | | | | Year ended December 31 | | | | | | | | | | | | | 2016 | | | 2017 | | | 2018 | | | 2018 | | | | | | | | | | | | | | | | | |
| | | Note | | | In millions | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash generated from operations (Appendix) | | | | | | 975 | | | | 1,002 | | | | 627 | | | | 168 | | | | | | 1,002 | | | 627 | | | 838 | | | 241 | | Income tax paid | | | | | | (30 | ) | | | (29 | ) | | | (2 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | | | Net cash provided by operating activities | | | | | | 945 | | | | 973 | | | | 625 | | | | 167 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquisition of property and equipment | | | | | | (127 | ) | | | (223 | ) | | | (343 | ) | | | (92 | ) | | | | | (223 | ) | | (343 | ) | | (462 | ) | | (134 | ) | Acquisition of intangible and other assets | | | | | | (69 | ) | | | (153 | ) | | | (159 | ) | | | (42 | ) | | | | | (153 | ) | | (159 | ) | | (167 | ) | | (48 | ) | Acquisition of a business, net of cash acquired | | | | | | | | | | | | (3 | ) | | (1 | ) | Proceeds from (investment in) short-term deposits, net | | | | | | (452 | ) | | | 302 | | | | 150 | | | | 40 | | | | | | 302 | | | 150 | | | (552 | ) | | (159 | ) | Interest received | | | 24 | | | | 2 | | | | 2 | | | | 1 | | | | * | | | | 24 | | | 2 | | | 1 | | | 1 | | | * | | Consideration received from sales of property and equipment | | | 23 | | | | 7 | | | | * | | | | 3 | | | | 1 | | | | 23 | | | * | | | 3 | | | 2 | | | 1 | | Payment for acquisition of subsidiary, net of cash acquired | | | | | | | | | | | | | | | (3 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | Net cash used in investing activities | | | | | | | (639 | ) | | | (72 | ) | | | (351 | ) | | | (94 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Lease principal payments | | | | 19 | | | | | | | | | (139 | ) | | (39 | ) | Lease interest payments | | | | 19 | | | | | | | | | (20 | ) | | (6 | ) | Share issuance | | | 21 | | | | | | | | 190 | | | | | | | | | | | | 21 | | | 190 | | | | | | | | | | | Acquisition of treasury shares | | | 21 | | | | | | | | | | | | (100 | ) | | | (27 | ) | | | 21 | | | | | | (100 | ) | | | | | | | Proceeds from issuance of notes payable, net of | | | | | | | | | | | | | | | | | | | | | | issuance costs | | | 6,15 | | | | | | | | 650 | | | | 150 | | | | 40 | | | Proceeds from issuance of notes payable, net of issuance costs | | | | 6,15 | | | 650 | | | 150 | | | 562 | | | 164 | | Proceeds from issuance of option warrants exercisable for notes payables | | | | 15 | | | | | | | | | 37 | | | 11 | | Interest paid | | | | | | | (108 | ) | | | (165 | ) | | | (69 | ) | | | (18 | ) | | | 24 | | | (165 | ) | | (69 | ) | | (37 | ) | | (11 | ) | Non-current borrowings received | | | 6,15 | | | | 250 | | | | 350 | | | | | | | | | | | | 6,15 | | | 350 | | | | | | | | | | | Repayment of non-current borrowings | | | 15 | | | | (15 | ) | | | (1,332 | ) | | | (382 | ) | | | (102 | ) | | | 15 | | | (1,332 | ) | | (382 | ) | | (52 | ) | | (15 | ) | Repayment of current borrowings | | | | | | | | | | | | | (13 | ) | | (4 | ) | Repayment of notes payable | | | 15 | | | | (643 | ) | | | (443 | ) | | | (324 | ) | | | (86 | ) | | | 15 | | | (443 | ) | | (324 | ) | | (109 | ) | | (32 | ) | Net cash used in financing activities | | | | | | | (516 | ) | | | (750 | ) | | | (725 | ) | | | (193 | ) | | | | | | | | | | | | | | | | | | | | | | | | Transactions with non-controlling interests | | | | | | | | | | | | | | | | | | | | | Net cash provided by (used in) financing activities | | | | | | | | | | | | | | | | | | | | | INCREASE (DECREASE) IN CASH AND CASH | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EQUIVALENTS | | | | | | | (210 | ) | | | 151 | | | | (451 | ) | | | (120 | ) | | | | | 151 | | | (451 | ) | | (117 | ) | | (33 | ) | | | | | | | | | | | | | | | | | | | | | | | CASH AND CASH EQUIVALENTS AT BEGINNING | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | OF YEAR | | | | | | | 926 | | | | 716 | | | | 867 | | | | 231 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CASH AND CASH EQUIVALENTS AT END OF | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | YEAR | | | | | | | 716 | | | | 867 | | | | 416 | | | | 111 | | | | | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million. ** See Note 2 regarding the adoption of IFRS 16 - Leases. The accompanying notes are an integral part of the financial statements.
(Concluded) -– 2 PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS Appendix – Cash generated from operations and supplementary information
| | | | | | | | Convenience translation into U.S. dollars (note 2b3) | | | | | | | | | Convenience translation into U.S. dollars (note 2b3) | | | | | | | Year ended December 31, | | | | | | | | | | | | | 2016 | | | 2017 | | | 2018 | | | 2018 | | | | | | | | | | | | | | | | | | | | | Note | | | In millions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash generated from operations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Profit for the year | | | | | | 52 | | | | 114 | | | | 56 | | | | 15 | | | | | | 114 | | | 56 | | | 19 | | | 6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments for: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 10, 11 | | | | 565 | | | | 540 | | | | 545 | | | | 145 | | | 10,11 | | | 540 | | | 545 | | | 723 | | | 209 | | Amortization of deferred expenses - Right of use | | | 12 | | | | 30 | | | | 40 | | | | 47 | | | | 13 | | | 12 | | | 40 | | | 47 | | | 28 | | | 8 | | Employee share based compensation expenses | | | 21 | | | | 45 | | | | 20 | | | | 15 | | | | 4 | | | 21 | | | 20 | | | 15 | | | 17 | | | 5 | | Liability for employee rights upon retirement, net | | | 16 | | | | (3 | ) | | | (1 | ) | | | 1 | | | | * | | | 16 | | | (1 | ) | | 1 | | | 1 | | | * | | Finance costs, net | | | 24 | | | | 1 | | | | (2 | ) | | | (7 | ) | | | (2 | ) | | 24 | | | (2 | ) | | (7 | ) | | 5 | | | 1 | | Lease interest payments | | | 19 | | | | | | | | | 20 | | | 6 | | Interest paid | | | 24 | | | | 108 | | | | 165 | | | | 69 | | | | 18 | | | 24 | | | 165 | | | 69 | | | 37 | | | 11 | | Interest received | | | 24 | | | | (2 | ) | | | (2 | ) | | | (1 | ) | | | * | | | 24 | | | (2 | ) | | (1 | ) | | (1 | ) | | * | | Deferred income taxes | | | 25 | | | | 10 | | | | (13 | ) | | | 16 | | | | 4 | | | 25 | | | (13 | ) | | 16 | | | 4 | | | 1 | | Income tax paid | | | 25 | | | | 30 | | | | 29 | | | | 2 | | | | 1 | | | 25 | | | 29 | | | 2 | | | 1 | | | * | | Capital loss from property and equipment | | | | | | * | | | * | | | (2 | ) | | (1 | ) | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Decrease (increase) in accounts receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trade | | | 7 | | | | 226 | | | | 283 | | | | 124 | | | | 33 | | | 7 | | | 283 | | | 124 | | | 42 | | | 12 | | Other | | | | | | | (9 | ) | | | 6 | | | | 16 | | | | 4 | | | | | | 6 | | | 16 | | | (1 | ) | | * | | Increase (decrease) in accounts payable and accruals: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trade | | | | | | | (38 | ) | | | 69 | | | | (69 | ) | | | (18 | ) | | | | | 69 | | | (69 | ) | | 63 | | | 18 | | Other payables | | | | | | | * | | | | (3 | ) | | | (18 | ) | | | (5 | ) | | | | | (3 | ) | | (18 | ) | | 12 | | | 3 | | Provisions | | | 14 | | | | * | | | | (2 | ) | | | (11 | ) | | | (3 | ) | | 14 | | | (2 | ) | | (11 | ) | | (21 | ) | | (6 | ) | Deferred income with respect to settlement | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | agreement with Orange | | | 18 | | | | (217 | ) | | | (108 | ) | | | | | | | | | | 18 | | | (108 | ) | | | | | | | | | | Deferred revenues from HOT mobile | | | 9 | | | | 227 | | | | (31 | ) | | | (31 | ) | | | (8 | ) | | 9 | | | (31 | ) | | (31 | ) | | (31 | ) | | (9 | ) | Other deferred revenues | | | | | | | 10 | | | | 3 | | | | * | | | | * | | | | | | 3 | | | * | | | 4 | | | 1 | | Increase in deferred expenses - Right of use | | | 12 | | | | (80 | ) | | | (113 | ) | | | (107 | ) | | | (28 | ) | | 12 | | | (113 | ) | | (107 | ) | | (51 | ) | | (15 | ) | Current income tax | | | 25 | | | | (4 | ) | | | 5 | | | | (15 | ) | | | (4 | ) | | 25 | | | 5 | | | (15 | ) | | (5 | ) | | (1 | ) | Decrease in inventories | | | 8 | | | | 24 | | | | 3 | | | | (5 | ) | | | (1 | ) | | Decrease (increase) in inventories | | | 8 | | | | | | | | | | | | | | | | | | Cash generated from operations: | | | | | | | 975 | | | | 1,002 | | | | 627 | | | | 168 | | | | | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million. ** See Note 2 regarding the adoption of IFRS 16 - Leases. Supplementary information
At December 31, 2016, 2017, 2018 and 2018,2019, trade and other payables include NIS 134165 million, NIS 165157 million and NIS 157115 million (US$ 4233 million), respectively, in respect of acquisition of intangible assets and property and equipment; payments in respect thereof are presented in cash flows from investing activities.
For non-cash movements in lease liabilities and lease right of use assets see note 19.
These balances are recognized in the cash flow statements upon payment. Cost of inventory used as fixed assets during 20172018 and 20182019 were NIS 308 million and NIS 824 million (US$ 27 million), respectively.
See note 9 with respect to Company's share in PHI's statement of financial position items.
The accompanying notes are an integral part of the financial statements.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
a. Reporting entity
Partner Communications Company Ltd. ("the Company", "Partner") is a leading Israeli provider of telecommunications services (cellular, fixed-line telephony, internet and television services) under the Partner brand, and cellular services also under the 012 Mobile brand. The Company is incorporated and domiciled in Israel and its principal executive office’s address is 8 Amal Street, Afeq Industrial Park, Rosh-Ha'ayin 48103, Israel.
The Company's share capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange Ltd. ("TASE") under the symbol "PTNR". American Depositary Shares ("ADSs"), each representing one of the Company’s ordinary shares, are quoted on the NASDAQ Global Select Market™, under the symbol "PTNR". See also note 21(a).
On January 29, 2013, S.B. Israel Telecom Ltd., an affiliate of Saban Capital Group Inc., becameRegarding the Company's principal shareholder.shareholder and holdings of approved Israeli shareholders in the Company, see note 26.
These consolidated financial statements of the Company as of December 31, 2018,2019, are comprised of the Company and its subsidiaries and consolidated partnerships (the "Group"). See the list of subsidiaries and consolidated partnerships and principles of consolidation in note 2(c)(1). See also 2(c)(2) with respect to investment in PHI.
b. Operating segments
The operating segments were determined based on the reports reviewed by the Chief Executive Officer (CEO) who is responsible for allocating resources and assessing performance of the operating segments, and therefore is the Chief Operating Decision Maker ("CODM"), and supported by budget and business plans structure, different regulations and licenses (see (c) below). The CEO considers the business from two operating segments, as follows (see also note 5):
(1) Cellular segment:
TheServices in the cellular segment includesinclude basic cellular telephony services, text messaging, internet browsing and data transfer, content services, roaming services, and services provided to other operators that use the Company's cellular network. The two payment methods offered to our customers are pre-paid and post-paid. Pre-paid services are offered to customers that purchase credit in advance of service use. Post-paid services are offered to customers with bank and credit arrangements. Most of the cellular tariff plans are bundles which include unlimited volumes of calls time and text messaging (with fair use limits), as well as limited data packages. Cellular content and value-added services offered include multimedia messaging, cyber protection, cloud backup, ringtones, the Apple Music streaming service, and a range of advanced business services.
International roaming services abroad for the Company’s customers include airtime calls, text messaging and data services on networks with which the Company has a commercial roaming relationship. Partner also provides inbound roaming services to the customers of foreign operators with which the Company has a commercial roaming relationship.
Optional services such as equipment extended warranty plans and international calling plans are also provided for an additional monthly charge or included in specific tariff plans. We also provide cellular phone repair services for our customers and for independent merchants.
In addition, the cellular segment includes wholesale cellular services provided to virtual operators who use the Partner cellular network to provide services to their customers.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL (continued)
b. Operating segments (continued)
(2) Fixed-line segment
TheServices in the fixed-line segment includes:include: (a) Internet services that provide access to the internet through both fiber optics and wholesale broadband access, ISP services and internet Value Added Services (“VAS”) such as cyber protection, anti-virus and anti-spam filtering; and fixed-line voice communication services provided through Voice Over Broadband (“VOB”); (b) For business customers, SIP voice trunks, Network Termination Point Services ("NTP") – under which the Group supplies, installs, operates and maintains endpoint network equipment and solutions, including providing and installing equipment and cabling within a subscriber's place of business or premises, hosting services, transmission services, Primary Rate Interface (“PRI”) and other fixed-line communications solution services; (c) International Long Distance services (“ILD”): outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services; (d) Television services over the Internet ("TV").
The cellular segment and the fixed-line segment also include sales and leasing of telecommunications, audio visual and related devices: mainly cellular handsets, tablets (handheld computers), laptops, landline phones, modems, datacards, domestic routers, servers and related equipment, integration project hardware and a variety of digital audio visual devices and small household appliances including smart watches, car dashboard cameras, televisions, digital cameras, games consoles, audio accessories and relatedother devices.
Each segment is divided into services and equipment revenues, and the related cost of revenues. The operating segments include the following measures: revenues, cost of revenues, operating profit and segment Adjusted EBITDA (see note 5(2)). The CODM does not examine assets or liabilities for the segments separately for the purposes of allocating resources and assessing performance of the operating segments and they are not therefore presented in note 5 segment information.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL (continued)
c. Group licenses
The Group operates under the following licenses that were received from the Israeli Ministry of Communications ("MOC") and from the Israeli Civil Administration ("CA"):
| Type of services | Area of service | License owner | Granted by | Valid through | Guarantees made (NIS millions) | Type of services | Area of service | License owner | Granted by | Valid through | Guarantees made (NIS millions) | (1) | Cellular | Israel | Partner Communications Company Ltd. | MOC | Feb, 2022 | 80 | Cellular | Israel | Partner Communications Company Ltd. | MOC | Feb, 2022 | 80 | (2) | Cellular | West Bank | Partner Communications Company Ltd. | CA | Feb, 2022 | 4 | Cellular | West Bank | Partner Communications Company Ltd. | CA | Feb, 2022 | 4 | (3) | ISP | Israel | Partner Communications Company Ltd. | MOC | Mar, 2023 | | Cellular infrastructure | Israel | P.H.I Networks (2015) Lp. | MOC | Aug, 2025 | | (4) | ISP | West Bank | Partner Communications Company Ltd. | CA | Mar, 2023 | | ISP | Israel | Partner Communications Company Ltd. | MOC | Mar, 2023 | | (5) | ISP | Israel | 012 Smile Telecom Ltd. | MOC | Cancelled* | | ISP | West Bank | Partner Communications Company Ltd. | CA | Mar, 2023 | | (6) | ISP | West Bank | 012 Smile Telecom Ltd. | CA | Cancelled* | | Fixed (incl. ISP, ILD, NTP) | Israel | Partner Land-line Communication Solutions - Limited Partnership | MOC | Jan, 2027 | 5 | (7) | ILD | Israel | 012 Smile Telecom Ltd. | MOC | Cancelled* | 5 | Fixed (incl. ISP, ILD, NTP) | West Bank | Partner Land-line Communication Solutions - Limited Partnership | CA | Jan, 2027 | 0.25 | (8) | ILD | West Bank | 012 Smile Telecom Ltd. | CA | Cancelled* | 0.25 | | (9) | Fixed | Israel | 012 Telecom Ltd. | MOC | Cancelled* | 5 | | (10) | Fixed | West Bank | 012 Telecom Ltd. | CA | Cancelled* | 0.25 | | (11) | Fixed (incl. ISP, ILD, NTP) | Israel | Partner Land-line Communication Solutions - Limited Partnership | MOC | Jan, 2027 | 5 | | (12) | Fixed (incl. ISP, ILD, NTP) | West Bank | Partner Land-line Communication Solutions - Limited Partnership | CA | Jan, 2027 | 0.25 | | (13) | NTP | Israel | 012 Smile Telecom Ltd. | MOC | Cancelled* | | |
The Group also has a trade license that regulates issues of servicing and trading of equipment, and a number of encryption licenses that permits dealing with means of encryption within the framework of providing radio telephone services to the public.
With respect to license (1) and (2), the Company is entitled to request an extension of the license for additional periods of six years(*), at the discretion of the MOC.MOC and CA. Should the licenselicenses not be renewed, the new license-holder is obliged to purchase the communications network and all the rights and obligations of the subscribers for a fair price, as agreed between the parties or as determined by an arbitrator. For a renewal the MOC is to consider, among other things: if the Company has met the regulatory requirements, provided improved and technology updated services, Company's actions did not harm or restrict competition, is able to continue provide quality service and make the investments required for it, and made efficient use of its cellular frequencies. The Company has made an annual examination of the estimated useful life of the license. Based on Company's judgment described above, the Company expects that the license will be renewed at a high level of certainty: the Company estimates that, based on its experience and acquaintance with the communications market in Israel, if current conditions continue, there is high probability that the license will be extended for the additional term of 6 years(*). Following this examination, the estimated useful life of the 2G and 3G frequencies was re-evaluated for an additional period of 6 years, thereby ending on February 1, 2028(*). See also note 2(f).
(*(*) Cancelled in 2019 per requests filed It should be noted that the MOC's frequencies tender's documents include a draft amendment of the license that amends the additional extension periods from 6 years to 10 years. In case the amendment shall become final, the estimated useful life of the 2G and 3G frequencies will be revised to end by the Group.February 1, 2032.
Other licenses may be extended for various periods, at the discretion of the MOC or CA, respectively.
See also note 17(5) as to additional guarantees made to third parties.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
| a. | Basis of preparation of the financial statements |
The consolidated financial statements of the Company ("the financial statements") have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB).
The principal accounting policies set out below have been consistently applied to all periods presented unless otherwise stated.
| (2) | Use of estimates and judgments |
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates, and requires management to exercise its judgment in the process of applying the Group's accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
| b. | Foreign currency translations |
(1) Functional and presentation currency The consolidated financial statements are measured and presented in New Israeli Shekels ("NIS"), which is the Group's functional and presentation currency as it is the currency of the primary economic environment in which the Group operates. The amounts presented in NIS millions are rounded to the nearest NIS million.
(2) Transactions and balances Foreign currency transactions are translated into NIS using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement in finance costs, net.
(3) Convenience translation into U.S. Dollars (USD or $ or dollar) The NIS figures at December 31, 20182019 and for the period then ended have been translated into dollars using the representative exchange rate of the dollar at December 31, 20182019 (USD 1 = NIS 3.748)3.456). The translation was made solely for convenience, is supplementary information, and is distinguished from the financial statements. The translated dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, dollars.
| c. | Interests in other entities |
(1) Subsidiaries
The consolidated financial statements include the accounts of the Company and entities controlled by the Company. Control exists when the Company has the power over the investee; has exposure, or rights, to variable returns from involvement in the investee; and has the ability to use its power over the investee to affect its returns. Subsidiaries and partnerships are fully consolidated from the date on which control is transferred to the Company.
Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated in preparing the consolidated financial statements.
Non-controlling interests in the results and equity of a subsidiary are shown separately in the consolidated statements of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively.
List of wholly owned Subsidiaries and partnerships:
| §◾ | Partner Land-Line Communication Solutions - Limited Partnership |
| §◾ | Partner Future Communications 2000 Ltd. ("PFC") |
| §◾ | PartnerGet Cell Communication Products 2016 - Limited Partnership |
| §◾ | Partner Business Communications Solution - Limited Partnership – not active |
Other subsidiaries 51% owned:
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
c. Interests in other entities (continued)
(2) Investment in PHI
In November 2013, the Company and Hot Mobile Ltd. entered into a network sharing agreement ("NSA") and a right of use agreement. Pursuant to the NSA, the parties created a 50-50 limited partnership - P.H.I. Networks (2015) Limited Partnership ("PHI"), which operates and develops a radio access network shared by both parties, starting with a pooling of both parties' radio access network infrastructures creating a single shared pooled radio access network. PHI began its operations in July 2015, managing the networks.
As ofThrough December 31, 2018 the Company doesdid not control PHI nor doesdid it have joint control over it. The investment in PHI iswas accounted for using the equity method of accounting. Under the equity method, the investment iswas initially recognized at cost, and adjusted thereafter to recognize the investor’s share of the post-establishment profits or losses of the investee in profit or loss, and the group’sGroup’s share of movements in other comprehensive income of the investee in other comprehensive income. See also note 9 with respect to a subsequent event of change in the governance of PHI that caused the Company to account for PHI as a joint operation from January 1, 2019.
Unrealized gains on transactions between the Group and the associate are eliminated to the extent of the Group’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
From January 1, 2019 following a change in the governance of PHI the Company accounts for PHI as a joint operation. Therefore, the Company recognizes its direct right to the assets, liabilities, revenues and expenses of PHI and its share of any jointly held or incurred assets, liabilities, revenues and expenses. See also note 9 with respect to a change in the governance of PHI that caused from January 1, 2019, and for information about transactions and balances with respect to the investment in PHI – as a related party.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories of equipment: cellular handsets and fixed telephones, tablets, laptops, datacards, servers, spare parts, ISP modems, related equipment, accessories and other inventories are stated at the lower of cost or net realizable value. Cost is determined on the "first-in, first-out" basis. The Group determines its allowance for inventory obsolescence and slow moving inventory based upon past experience, expected inventory turnover, inventory ageing and current and future expectations with respect to product offerings.
Property and equipment are initially stated at cost.
Costs are included in the assets' carrying amounts or recognized as separate assets, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance that do not meet the above criteria are charged to the statement of income during the financial period in which they are incurred.
Costs include expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and until December 31, 2018, the costs of dismantling and removing the items and restoring the site on which they are located. Changes in From January 1, 2019 the obligation to dismantlecosts of dismantling and remove assets on sitesremoving the items and to restorerestoring the sites,site on which they are located other than changes deriving from the passing of time, are added or deducted from the cost of the assetsincluded in the period in which they occur. The amount deducted from the costlease-right of theuse asset shall not exceed the balance of the carrying amount on the date of change,under IFRS16, see notes 3 and any balance is recognized immediately in profit or loss. See (m)(2)2(o).
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
Property and equipment is presented less accumulated depreciation, and accumulated impairment losses. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see (i)). The useful economic lives of the Group's non-financial assets are reviewed annually, see note 4(1).
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
| e. | Property and equipment (continued) |
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, as follows:
| | Communications network: | | Physical layer and infrastructure | 10 - 25 (mainly 15, 10) | Other Communication network | 3 - 15 (mainly 5, 10, 15) | Computers, software and hardware for | | information systems | 3-10 (mainly 3-5) | Office furniture and equipment | 7-15 | Optic fibers and related assets | 7-25 (mainly 25) | Subscribers equipment and installations | 2 - 4 | Property | 25 |
Leasehold improvements are depreciated by the straight-line method over the term of the lease (including reasonably assured option periods), or the estimated useful life (between 5 to 10 years) of the improvements, whichever is shorter.
| f. | Licenses and other intangible assets |
| (1) | Licenses costs and amortization (see also note 1(c)): |
| (a) | The licenses to operate cellular communication services were recognized at cost. Borrowing costs which served to finance the license fee - incurred until the commencement of utilization of the license - were capitalized to cost of the license. |
| (b) | Partner Land-line Communication solutions – limited partnership's license for providing fixed-line communication services is stated at cost. |
The other licenses of the Group were received with no significant costs.
The licenses are amortized by the straight-line method over their useful lives (see note 1(c)) excluding any ungranted possible future extensions that are not under the Group's control. The amortization expenses are included in the cost of revenues.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES(continued)
| f. | Licenses and other intangible assets(continued) |
Change in an accounting estimate:
Management has updated an accounting estimate as follows: The estimated useful life of the cellular license was determined in the past to end by February 1, 2022. According to applicable law, the Company's cellular license may be extended for additional 6-year periods(*), subject to the requirements set in the license.
The MOC published a tender during 2019 for the award of frequencies, including frequencies for 5G services. Following the tender published, Management made an annual examination of the estimated useful life of the license in the fourth quarter of 2019 with the expectation that conditions necessary to obtain renewal of the license will be satisfied and that the cost of renewal will not be significant. The tender includes 2x30 MHz in the 700 MHz Band, 2x60 MHz in the 2,600MHz band and 300 MHz in the 3,500-3,800 MHz band. The frequencies in the 700 MHz band will be awarded for a period of 15 years and the rest of the frequencies offered in the tender will be awarded for a period of 10 years.
Based on Company's judgment described above, the Company expects that the license will be renewed at a high level of certainty: the Company estimates that based on its experience and acquaintance with the communications market in Israel, if current conditions continue, there is high probability that the license will be extended for the additional term of 6 years. Following this examination, the estimated useful life of the 2G and 3G frequencies was re-evaluated for an additional period of 6 years(*), thereby ending on February 1, 2028(*).
The effect of these changes on the consolidated financial statements, in current and future years is as follows: the amortization expenses of the cellular license were reduced by NIS 15 million in the fourth quarter of 2019, and are expected to be reduced by an annual amount of approximately NIS 60 million in 2020 and 2021. See also note 4(1).
(*) It should be noted that the tender's documents include a draft amendment of the license that amends the additional extension periods from 6 years to 10 years. In case the amendment shall become final, the estimated useful life of the 2G and 3G frequencies will be revised to end by February 1, 2032.
The other licenses are amortized by the straight-line method over their useful lives (see note 1(c)) which exclude any ungranted possible future extensions that are not under the Group's control.
The amortization expenses are included in the cost of revenues.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
f. Licenses and other intangible assets (continued)
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and to bring to use the specified software.
Development costs, including employee costs, that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the capitalization criteria under IAS 38 are met. Other development expenditures that do not meet the capitalization criteria, such as software maintenance, are recognized as an expenses as incurred.
Computer software costs are amortized over their estimated useful lives (3 to 10 years) using the straight-line method, see also note 11.
| (3) | Customer relationships: |
The Company has recognized as intangible assets customer relationships that were acquired in a business combination and recognized at fair value as of the acquisition date. Customer relationships are amortized to selling and marketing expenses over their estimated useful economic lives (5 to 10 years) based on the straight line method.
Trade name was acquired in a business combination. In 2015, the Group decided to cease the usage of the "012 Smile" trade name in 2017. As a result the Group revised its expected useful life to end in 2017 as a change in accounting estimate. As a result the amortization expenses of the 012 Smile trade name increased by NIS 1 million, NIS 16 million, and NIS 6 million in 2015, 2016, 2017 respectively, see also notes 4(a)(2), and 13(2). As of December 31, 2017 the trade name was fully amortized.
| (5) | Capitalization of costs to obtaining customers contracts: |
Commencing January 1, 2017 (see note 2(n)) costsCosts of obtaining contracts with customers are recognized as assets when the costs are incremental to obtaining the contracts, and it is probable that the Group will recover these costs. The assets are amortized to selling and marketing expenses in accordance with the expected service period (mainly over 2-3 years), using the portfolio approach, see also notes 4(a)(1)4(1) and 11. Other costs incurred that would arise regardless of whether a contract with a customer was obtained are recognized as an expense when incurred.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
| g. | Deferred expenses - Right Of Use (ROU) |
Right of use (ROU) of international fiber optic cables was acquired in a business combination, subsequent additions and right of use in PHI's assets are recognized at cost. The ROU with respect of fiber optic cables is presented as deferred expenses (current and non-current) and is amortized to cost of revenues on a straight line basis over a period beginning each acquisition of additional ROU in this framework and until 2030 (including expected contractual extension periods). See also notes 12 and 17(4). OtherUntil December 31, 2018 other costs of right to use PHI's assets are presented as deferred expenses and amortized on a straight line basis over the assets' useful lives.lives, see note 9.
Goodwill acquired in a business combination represents the excess of the consideration transferred over the net fair value of the identifiable assets acquired, and identifiable liabilities and contingent liabilities assumed. The goodwill has an indefinite useful economic life and is not subject to amortization; rather is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to a group of CGUscash-generating units (CGUs) under the fixed line segment that is expected to benefit from the synergies of the combination. The group of CGUs represents the lowest level within the entity which the goodwill is monitored for internal management purposes.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Any impairment loss would be recognized for the amount by which the carrying amount of goodwill exceeded its recoverable amount. The recoverable amount is the higher of value-in-use and the fair value less costs to sell. Value-in-use is determined by discounting expected future cash flows using a pre-tax discount rate. Any impairment is recognized immediately as an expense and is not subsequently reversed. See also note 13(1) with respect to impairment tests.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
| i. | Impairment tests of non-financial assets with finite useful economic lives |
Assets that are subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If such indications exist an impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs. The recoverable amount is the higher of an asset's fair value less costs to sell and value-in-use. Value-in-use is determined by discounting expected future cash flows using a pre-tax discount rate.
An impairment loss recognized for an asset (or CGU) other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset's (or CGU's) recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset (or CGU) shall be increased to its recoverable amount. The increased carrying amount of an asset (or CGU) other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in the statement of income.
From January 1, 2018 the Group applies IFRS 9 and classifies its financial instruments (only debt instruments) in the following categories: (1) amortized cost (AC), (2) at fair value through profit or loss (FVTPL: only embedded derivatives), (3)Financial liability at fair value through other comprehensive income (FVTOCI, not exist)(see note 15) and embedded derivatives), see note 3(1). The classification depends on the business model for managing the financial instruments and the contractual terms of the cash flows. See note 6(c) as to classification of financial instruments to the categories.
At initial recognition, the groupGroup measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Financial assets are classified as current if they are expected to mature within 12 months after the end of the reporting period; otherwise they are classified as non-current.
Financial liabilities are included in current liabilities, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current liabilities. See also note 15.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
j. Financial instruments (continued)
Gains or losses arising from changes in the fair value of embedded derivative financial instruments and financial liability at fair value are presented in the income statement within "finance costs, net" in the period in which they arise. These financial instruments are classified into 23 levels based on their valuation method (see also notes 6(c), 6(a)(2)(c)):
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly (as prices) or indirectly (derived from prices). Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for financial liability at fair value.
(2) Amortized cost category:
The groupGroup classifies its financial assets, such as trade receivables, at amortized cost only if both of the following criteria are met: (1) the asset is held within a business model whose objective is to collect the contractual cash flows, and (2) the contractual terms give rise to cash flows that are solely payments of principal and interest. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Interest income from trade receivables is included in the income statement under other income, net (see note 23) using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented in finance income/expense together with foreign exchange gains and losses. Impairment expenses (credit losses) are presented as separate line item in the statement of profit or loss.
Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, which include short-term bank deposits (up to 3 months from date of deposit) that are not restricted as to withdrawal or use.
Short term deposits, are deposits in commercial banks for periods of more than 3 months from date of deposit.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
j. Financial instruments (continued)
Financial assets at amortized cost are presented net of impairment losses:
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired based on the expected credit loss model. The assets that are subject to the expected credit loss model are mainly the trade receivables. While cash and cash equivalents, short-term deposits and contract assets are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
From January 1, 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables and contract assets the Group applies IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and period of payments and period past due. The expected loss rates are based on the payment profiles of sales, and the corresponding historical credit losses experienced. The historical loss rates are adjusted to reflect current and forward-looking information on factors affecting the ability of the customers to settle the receivables.
Financial liabilities, such as borrowings and notes payable, are initially recognized at fair value, net of transaction costs incurred, and subsequently measured at amortized cost. Any difference between the fair value (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method.
Offsetting:
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when the Group has currently a legal enforceable right to offset the recognized amounts and has an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legal enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.
Financial instruments for periods before January 1, 2018, were measured according to IAS 39 Financial instruments: Recognition and measurement. Under which non-derivative financial assets with fixed or determinable payments that were not quoted in an active market were categorized as Loans and Receivables, which were measured similar to the Amortized Cost category, less impairment losses. During 2016 and 2017 assessments were made whether objective evidence existed that a financial asset or a group of financial assets were impaired, and the trade receivables were presented net of allowance for doubtful accounts.
PARTNER COMMUNICATIONSCOMMUNIeCATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Post-employment benefits
1. Defined contribution plan
| 1. | Defined contribution plan |
According to Section 14 of the Israeli Severance Pay Law the Group's liability for some of the employee rights upon retirement is covered by regular contributions to various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds. These plans are defined contribution plans, since the Group pays fixed contributions into a separate and independent entity. The Group has no legal or constructive obligations to pay further contribution if the fund does not hold sufficient assets to pay all employees the benefit relating to employee service in the current or prior periods. The amounts funded as above are not reflected in the statement of financial position. Obligations for contributions to defined contribution pension plans are recognized as an expense in the statement of income when they are due.
2. Defined benefit plan
Labor laws, agreements and the practice of the Group, require paying retirement benefits to employees dismissed or retiring in certain other circumstances (except for those described in 1 above), measured by multiplying the years of employment by the last monthly salary of the employee (i.e. one monthly salary for each year of tenure), the obligation of the Group to pay retirement benefits is treated as a defined benefit plan.
The liability recognized in the statement of financial position in respect of the defined benefit plan is the present value of the defined benefit obligation at end of the reporting period less the fair values of plan assets.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. According to IAS 19 employee benefits, the present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of deep market for high-quality corporate bonds.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Interest costs in respect of the defined benefit plan are charged or credited to finance costs.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
| k. | k. Employee benefits (continued) |
(ii) Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably legally or constructively committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
(iii) Short term employee benefits
1. Vacation and recreation benefits
The employees are legally entitled to vacation and recreation benefits, both computed on an annual basis. This entitlement is based on the term of employment. This obligation is treated as a short term benefit under IAS 19. The Group charges a liability and expense due to vacation and recreation pay, based on the benefits that have been accumulated for each employee, on an undiscounted basis.
2. Profit-sharing and bonus plans
The Group recognizes a liability and an expense for bonuses based on consideration of individual performance and the Group's overall performance. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.
3. Other short term benefits
The Group recognized expenses for other short term benefits provided by the collective employment agreement (see also note 28)22(e)).
The Group operates an equity-settled share-based compensation plan to its employees, under which the Group receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the equity instruments is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the equity instruments granted, at the grant date. Non-market vesting conditions are included among the assumptions used to estimate the number of options expected to vest. The total expense is recognized during the vesting period, which is the period over which all of the specified vesting conditions of the share-based payment are to be satisfied. At the end of each reporting period, the Group revises its estimates of the number of equity instruments that are expected to vest based on the vesting conditions, and recognizes the impact of the revision of original estimates, if any, in the statement of income, with corresponding adjustment to accumulated earnings.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will require settling the obligation, and the amount has been reliably estimated. See note 14.
| (1) | In the ordinary course of business, the Group is involved in a number of lawsuits and litigations. The costs that may result from these lawsuits are only accrued for when it is probable that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, and events arising during the course of legal proceedings that may require a reassessment of this risk, and where applicable discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The Group's assessment of risk is based both on the advice of legal counsel and on the Group's estimate of the probable settlements amount that are expected to be incurred, if any. See also note 20. |
| (2) | The Company is required to incur certain costs in respect of a liability to dismantle and remove assets and to restore sites on which the assets were located. The dismantling costs are calculated according to best estimate of future expected payments discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as finance costs. |
| (3) | Provisions for equipment warranties include obligations to customers in respect of equipment sold. Where there are a number of similar obligations, the likelihood that an outflow will be required in a settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any item included in the same class of obligations may be small. |
| (4) | Group's share in provisions recognized by PHI is recognized to the extent probable that the Group will be required to cover, see also notes 9, 14. |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
In the third quarter of 2017 the Group has early adopted with a date of initial application of January 1, 2017 (the transition date)The revenue recognition standard IFRS 15, Revenue from Contracts with Customers, and its clarifications ("IFRS 15", "The Standard") using the cumulative effect approach, which effect was immaterial as of the transition date.
The standard outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes IAS 18, Revenue, and IAS 11, Construction contracts (the "previous standards"). The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount:
| 1) | Identifying the contract with the customer. |
| 2) | Identifying separate performance obligations in the contract. |
| 3) | Determining the transaction price. |
| 4) | Allocating the transaction price to separate performance obligations. |
| 5) | Recognizing revenue when the performance obligations are satisfied. |
(1) Identifying the contract with the customer
Two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) are accounted for as a single contract if one or more of the following criteria are met:
a. The contracts are negotiated as a package with a single commercial objective; b. The amount of consideration to be paid in one contract depends on the price or performance of the other contract; c. The goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation.
(2) Identifying performance obligations
The Group assesses the goods or services promised in the contract with the customer and identifies as performance obligation any promise to transfer to the customer one of the following:
| (a) | Goods or services (or a bundle of goods or services) that are distinct; or |
| (b) | A series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. |
Goods or services are identified as being distinct when the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and the Group’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. An option that grants the customer the right to purchase additional goods or services constitutes a separate performance obligation in the contract only if the options grant the customer a material right it would not have received without the original contract.
The performance obligations are mainly services, equipment and options to purchase additional goods or services that provide a material right to the customer.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
n. Revenues (continued)
(3) Determining the transaction price
The transaction price is the amount of consideration that the Group expects to receive for the transfer of the goods or services specified in a contract with the customer, taking into account rebates and discounts, excluding amounts collected on behalf of third parties, such as value added taxes.
The transaction price is also adjusted for the effects of the time value of money if the contract includes a significant financing component (such as sales of equipment with non-current credit arrangements, mainly in 36 monthly installments) and for any consideration payable to the customer. The Group applies a practical expedient in the standard and does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the Group expects the period between customer payment and the transfer of goods or services to be one year or less. The financing component is recognized in other income-net over the period which is calculated according to the effective interest method. See also note 23 – unwinding of trade receivables and note 7(a).
(4) Allocating the transaction price to separate performance obligations
In a transaction that constitutes a revenue arrangement with multiple performance obligations, the transaction price is allocated to separate performance obligations based of their relative stand-alone selling prices, see also note 4(b)(2).prices.
(5) Satisfaction of performance obligations
The Group recognizes revenue when it satisfies performance obligations by transferring control over the goods or services to the customers.
Revenues from services and from providing rights to use the Group's assets, (see note 1(b)) (either month-by-month or long term arrangements) are recognized over time, as the services are rendered to the customers, since the customer receives and uses the benefits simultaneously , and provided that all other revenue recognition criteria are met.
Revenue from sale of equipment (see note 1(b)) is recognized at a point of time when the control over the equipment is transferred to the customer (mainly upon delivery) and all other revenue recognition criteria are met.
(6) Principal – Agent consideration
The Group determines whether it is acting as a principal or as an agent for each performance obligation. The Group is acting as a principal if it controls a promised good or service before they are transferred to a customer. Indicators for acting as a principal include: (1) the Group is primarily responsible for fulfilling the promise to provide the specified good or service, (2) the Group has inventory risk in the specified good or service and (3) the Group has discretion in establishing the price for the specified good or service. On the other hand, the Group is acting as an agent or an intermediary, if these criteria are not met. When the Group is acting as an agent, revenue is recognized in the amount of any fee or commission to which the Group expects to be entitled in exchange for arranging for the other party to provide its goods or services. A Group’s fee or commission might be the net amount of consideration that the Group retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party. The Group determined that it is acting as an agent in respect of certain content services provided by third parties to customers; therefore the revenues recognized from these services are presented on a net basis in the statement of income.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
n. Revenues (continued)
(7) Recognition of receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are recognized when the control over the goods or services is transferred to the customer, and at the amount that is unconditional because only the passage of time is required before the payment is due. The Group holds the trade receivables with the objective to collect the contractual cash flows, and the contractual terms give rise to cash flows that are solely payments of principal and interest. Therefore they are subsequently measured at amortized cost using the effective interest method. See also note 7 and also note 6(a)(3) regarding trade receivables credit risk.
(8) Recognition of contract assets and contract liabilities
A contract asset is a Group’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the Group’s future performance).
A contract liability is a Group’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer; therefore the Group records contract liabilities for payments received in advance for services, such as transmission services and pre-paid calling cards, as deferred revenues until such related services are provided.
Contract assets and contract liabilities arising from the same contract are offset and presented as a single asset or liability.
(9) Transition to the new revenue recognition model and practical expedients applied:
The Group applied IFRS 15 using the cumulative effect approach as from the transition date, without a restatement of comparative figures. As part of the initial implementation of IFRS 15, the Group has chosen to apply the expedients in the transitional provisions, according to which the cumulative effect approach is applied only for contracts not yet complete at the transition date, and therefore there is no change in the accounting treatment for contracts completed at the transition date. The Group also applied the practical expedient of examining the aggregate effect of contracts changes that occurred before the transition date, instead of examining each change separately. Contracts that are renewed on a monthly basis and may be cancelled by the customer at any time, without penalty, were considered completed contracts at the transition date. The transition resulted in an immaterial amount on the statement of financial position as of the transition date, as the cumulative effect as of the transition date was immaterial.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
n. Revenues (continued)
(10)(9) Other practical expedients implemented:
The Group applies IFRS 15 practical expedient to the revenue model to a portfolio of contracts with similar characteristics if the Group reasonably expects that the financial statement effects of applying the model to the individual contracts within the portfolio would not differ materially.
The Group applies a practical expedient in the standard and measures progress toward completing satisfaction of a performance obligation and recognizes revenue based on billed amounts if the Group has a right to invoice a customer at an amount that corresponds directly with its performance to date; for which, or where the original expected duration of the contract is one year or less, the groupGroup also applies the practical expedient in the standard and does not disclose the transaction price allocated to unsatisfied, or partially unsatisfied, performance obligations, such as constrained variable consideration.
The Group applies in certain circumstances where the customer has a material right to acquire future goods or services and those goods or services are similar to the original goods or services in the contract and are provided in accordance with the same terms of the original contract, a practical alternative to estimating the stand-alone selling price of the customer option, and instead allocates the transaction price to the optional goods or services by reference to the goods or services expected to be provided and the corresponding expected consideration.
(11)(10) Capitalization of contract costs
The main effect of the Group’s application of IFRS 15 is the accounting treatment for the incremental costs of obtaining contracts with customers, which in accordance with IFRS 15, are recognized as assets under certain conditions, see notes 2(f)(5)(4), 11. Contract costs that were recognized as assets are presented in the statements of cash flows as part of cash flows used in investing activities.
(12)(11) Use of judgments and estimates
Implementation of the accounting policy described above requires management to exercise discretion in estimates and judgments, see notes 4(a)(1) and 4(b)(2).note 4.
See additional information with respect to revenues in note 22(a).
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(13) Quantitative information with respect to transition to IFRS15
The tables below summarize the effects of IFRS 15 on the consolidated statement of financial positionGroup as at December 31, 2017 and on the consolidated statements of income and cash flows for the year then ended.lessee:
EffectThrough December 31, 2018 the Group applied IAS 17 to account for leases whereby a significant portion of changethe risks and rewards of ownership were retained by the lessor were classified as operating leases. Therefore the Group's leases were primarily operating leases which were charged to income statements on consolidated statement of financial position:
| | New Israeli Shekels in millions | | | | As of December 31, 2017 | | | | Previous accounting policy | | | Effect of change | | | According to IFRS15 as reported | | Current assets - other receivables and prepaid expenses - Contract assets | | | - | | | | 2 | | | | 2 | | Non-current assets - Costs to obtain contracts recognized in intangible assets, net – non-current assets | | | - | | | | 71 | | | | 71 | | Deferred income tax asset | | | 71 | | | | (16 | ) | | | 55 | | Current liabilities - other deferred revenues – Contract liabilities | | | 36 | | | | 4 | | | | 40 | | Non-current liabilities – other non-current liabilities – Contract liabilities | | | 6 | | | | - | | | | 6 | | Deferred revenues from Hot Mobile – Contract liabilities (current and non-current) | | | 195 | | | | - | | | | 195 | | Equity | | | 1,381 | | | | 53 | | | | 1,434 | |
a straight-line basis over the lease term, including extending options which were reasonably certain.
Effect of changeThe Group has adopted IFRS 16 Leases retrospectively from January 1, 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on consolidated statement of income:
| | New Israeli Shekels In millions (except per share data) | | | | Year ended December 31, 2017 | | | | Previous accounting policy | | | Effect of change | | | According to IFRS15 as reported | | Revenues | | | 3,270 | | | | (2 | ) | | | 3,268 | | Selling and marketing expenses | | | 340 | | | | (71 | ) | | | 269 | | Operating profit | | | 246 | | | | 69 | | | | 315 | | Profit before income tax | | | 66 | | | | 69 | | | | 135 | | Income tax expenses | | | 5 | | | | 16 | | | | 21 | | Profit for the year | | | 61 | | | | 53 | | | | 114 | | | | | | | | | | | | | | | Depreciation and amortization expense | | | 567 | | | | 13 | | | | 580 | | Basic earnings per share | | | 0.38 | | | | 0.32 | | | | 0.70 | | Diluted earnings per share | | | 0.37 | | | | 0.32 | | | | 0.69 | |
January 1, 2019. The transition is disclosed in notes 3(a) and 19.
EffectOn adoption of changeIFRS 16 on consolidated statement cash flows:
| | New Israeli Shekels in millions | | | | Year ended December 31, 2017 | | | | Previous accounting policy | | | Effect of change | | | According to IFRS15 as reported | | Net cash provided by operating activities | | | 897 | | | | 76 | | | | 973 | | Net cash provided by (used in) investing activities | | | 4 | | | | (76 | ) | | | (72 | ) |
January 1, 2019, the Group recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ and corresponding right-of-use assets. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019.
The Group applied the following practical expedients:
Non-lease components: practical expedient by class of underlying asset not to separate non-lease components (services) from lease components and, instead, account for each lease component and any associated non lease components as a single lease component. Discount rate: The lease payments are discounted using the lessee’s incremental borrowing rate, since the interest rate implicit in the lease cannot be readily determined. The lessee’s incremental borrowing rate is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. However, the Group is using the practical expedient of accounting together a portfolio of leases with similar characteristics provided that it is reasonably expected that the effects on the financial statements of applying this standard to the portfolio would not differ materially from applying this Standard to the individual leases within that portfolio. And using a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment). The discount rates were estimated by management with the assistance of an independent external expert. Low-value leases: The low-value leases practical expedient is applied and these leases are recognized on a straight-line basis as expense in profit or loss.
The practical expedient for short-term leases is not applied.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Group as lessee (continued):
Lease liabilities measurement: Lease liabilities were initially measured on a present value basis of the following lease payments:
fixed payments (including in-substance fixed payments), less any lease incentives receivable variable lease payment that are based on an index or a rate (such as CPI) amounts expected to be payable by the lessee under residual value guarantees the exercise price of a purchase option if the lessee is reasonably certain to exercise that option payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option (see also note 4(7)), and lease payments (principal and interest) to be made under reasonably certain extension options (see also note 4(7))
The Group's leases primarilylease liability is subsequently measured according to the effective interest method, with interest costs recognized in the statement of income as incurred. The amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Group is exposed to potential future changes in lease payments based on linkage to the CPI index, which are operating leases.not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are presented in the statement of cash flows under the cash used in financing activities. Lease payments are allocated between principal and finance cost. The finance cost is charged to the statement of income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets measurement: Right-of-use assets were measured at cost comprising the following:
the amount of the initial measurement of lease liability any lease payments made at or before the commencement date less any lease incentives received any initial direct costs (except for initial application), and
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term (including reasonably certain extension periods) on a straight-line basis, and adjusted for any remeasurements of lease liabilities. As of the adoption date of IFRS 16, the average remaining amortization period is as follows: Cell sites 4.5 years, buildings 6 years, vehicles 2 years. The right-of-use assets are also subject to impairment, see note 2(i).
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
o. Leases (continued)
Group as lessor: The cellular segment and the fixed-line segment also include leasing of telecommunications, audio visual and related devices (see note 1(b)). Leases in which a significant portion ofthe Group does not transfer substantially all the risks and rewards incidental to ownership of ownership are retained by the lessoran asset are classified as operating leases. Payments made underLease income from operating leases (net of any incentives received from lessor) are charged towhere the Group is a lessor is recognized in income statements on a straight-line basis over the lease term, including extending options whichterm. The respective leased assets are reasonably certain.included in the balance sheet based on their nature. The Group did not need to make any adjustments to the accounting for assets held as lessor as a result of adopting IFRS 16.
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted as of the end of the reporting period. Management periodically evaluates positions taken with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized on temporary differences arising between that tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognized if they arise from initial recognition of goodwill. Deferred income tax is determined using the tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets are presented as non-current, see also note 25.
Deferred25.Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity where there is an intention to settle the balances on a net basis.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Ordinary shares are classified as equity.
Company's shares acquired by the Company (treasury shares) are presented as a reduction of equity, at the consideration paid, including any incremental attributable costs, net of tax. Treasury shares do not have a right to receive dividends or to vote. See also note 21(a).
| r. | Earnings Per Share (EPS) |
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by the Company and held as treasury shares.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume exercise of all dilutive potential ordinary shares. The instruments that are potential dilutive ordinary shares are equity instruments granted to employees, see note 21(b). A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options (see also note 27).
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
(1) The following relevant new standards, amendments to standards or interpretations have been issued, and were effective for the first time for financial periods beginning on or after January 1, 2018.
IFRS 9, Financial Instruments, addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. IFRS 9 retains but simplifies the measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income and fair value through profit or loss (see note 6(c)). It introduces a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. The Group applied the new rules retrospectively from January 1, 2018, with the practical expedients permitted under the standard. The Group has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the group’s previous accounting policy. The effect of IFRS 9 implementation was not material.
(2) The following relevant new standards, amendments to standards or interpretations have been issued, but are not effective for the financial periods beginning January 1, 2018, and have not been early adopted:2019.
(a) IFRS 16, Leases. It will resultresults in almost all leases, where the Group is the lessee, being recognized on the balance sheet, as the distinction between operating and finance leases is removed for lessees. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay lease payments are recognized on the statement of financial position. The only exceptions for lessees are short-term (not applied) and low-value leases (applied) which will beare recognized on a straight-line basis as expense in profit or loss. The statement of profit or loss willincome is also be affected because operating expense will beis replaced with interest and depreciation. Operating cash flows will beis higher as cash payments of the lease liability will beare classified within financing activities. The accounting for lessors willdid significantly change and therefore the Group did not significantly change. The lease liability will subsequently be measured accordingneed to make any adjustments to the effective interest method, with interest costs recognized inaccounting for assets held as lessor under operating leases as a result of the statementadoption of income as incurred. Lease payments will be presented in the statement of cash flows under the cash used in financing activities. The right of use asset will subsequently be amortized according to the straight line method over the contract term using the portfolio approach.IFRS 16. The main lease contracts expected to affectthat affected the financial statements are operating leases where the Group leases offices, retail stores and service centers, cell sites, and vehicles, see notealso notes 2(o), 4(7) and 19.
AssetsTransition to IFRS 16:
The Group applied the standard from its mandatory adoption date January 1, 2019. The Group applied the simplified transition approach and liabilities from a lease will initially bedid not restate comparative amounts for the year prior to first adoption. Right-of-use assets for certain property leases were measured on a present value basis. Lease liabilities will includetransition as if the netnew rules had always been applied. All other right-of-use assets were measured at the amount equal to the lease liability on adoption (adjusted for any prepaid or accrued lease expenses, dismantling and restoring obligations).
As of the transition date, the group applied the following practical expedients:
the lease liability was measured for leases previously classified as an operating leases under IAS 17 at the present value of the followingremaining lease payments:payments, discounted using the lessee’s incremental borrowing rate at the date of initial application; accounting together a portfolio of leases with similar characteristics provided that it is reasonably expected that the effects on the financial statements of applying this standard to the portfolio would not differ materially from applying this Standard to the individual leases within that portfolio. And using a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment); | · | fixed payments (including in-substance fixed payments), less any lease incentives receivable |
rely on its assessment of whether leases are onerous applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review; | · | variable lease payment that are based on an index or a rate |
not reassess whether a contract is, or contains, a lease at the date of initial application, and therefore IFRS 16 was not applied to contracts that were not previously identified as containing a lease. | · | amounts expected to be payable by the lessee under residual value guarantees |
initial direct costs were excluded from the measurement of the right-of-use asset at the date of initial application; | · | the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and |
| · | payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. |
Right-of-use assets will be measured at cost comprisinguse hindsight, such as in determining the following:lease term if the contract contains options to extend or terminate the lease.
| · | the amount of the initial measurement of lease liability |
| · | any lease payments made at or before the commencement date less any lease incentives received |
| · | any initial direct costs (except for initial application), and |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
(2)(1) The following relevant new standards, amendments to standards or interpretations have been issued, but are notand were effective for the first time for financial periods beginning on or after January 1, 2018, and have not been early adopted2019 (continued):
(a) IFRS 16, Leases (continued):
The Group also plansQuantitative information with respect to apply the following practical expedients:
| · | practical expedient by class of underlying asset not to separate non-lease components (services) from lease components and, instead, account for each lease component and any associated non lease components as a single lease component. |
| · | using a portfolio of leases with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual leases within that portfolio. And using a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment). |
transition to IFRS16: The Group will applytables below summarize the standard from its mandatory adoption dateeffects of IFRS 16 on the consolidated statement of financial position as at January 1, 2019. The Group intends to apply2019 and on the simplified transition approachconsolidated statements of income and will not restate comparative amountscash flows for the year prior to first adoption. Right-of-use assets for certain property leases will be measured on transition as if the new rules had always been applied. All other right-of-use assets will be measured at the amount equalyear ended December 31, 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 2.43%. See also note 19.
Effect of change on consolidated statement of financial position:
| | New Israeli Shekels in millions | | | | | | | | Previous accounting policy | | | | | | According to IFRS16 as reported | | Non-current assets - Lease – right of use | | | - | | | | 656 | | | | 656 | | Non-current assets - Deferred income tax asset | | | 38 | | | | 6 | | | | 44 | | | | | | | | | | | | | | | Current liabilities - Lease liabilities | | | - | | | | 137 | | | | 137 | | Non-current liabilities - Lease liabilities | | | - | | | | 546 | | | | 546 | | Equity | | | 1,406 | | | | (21 | ) | | | 1,385 | |
Measurement of lease liability on adoption (adjusted for any prepaid or accrued lease expenses, dismantling and restoring obligations).as of January 1, 2019:
| · | On transition the Group plans to use the following practical expedients:New Israeli Shekels in millions | |
Operating lease commitments (undiscounted) disclosed as at December 31, 2018 | · | the lease liability will be measured for leases previously classified as an operating leases under IAS 17 at the present value of the remaining lease payments, discounted | | | Discounted using the lessee’slessee's incremental borrowing rate atas of the date of initial application;application | | | 328 | | Group's share in PHI's lease liability (see note 9) | | | | | Lease liability recognized as at January 1, 2019 | | | | | Of which are: | | | | | Current lease liabilities | | | 137 | | Non-current liabilities | | | 546 | |
| · | will rely on its assessment of whether leases are onerous applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review; |
| · | not reassess whether a contract is, or contains, a lease at the date of initial application, and therefore IFRS 16 will not be applied to contracts that were not previously identified as containing a lease. |
| · | Initial direct costs will be excluded from the measurement of the right-of-use asset at the date of initial application; |
| · | use hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease. |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
(2)(1) The following relevant new standards, amendments to standards or interpretations have been issued, but are notand were effective for the first time for financial periods beginning on or after January 1, 2018, and have not been early adopted2019 (continued):
(a) IFRS 16, Leases(continued):
As described in note 9 in January 2019 the governance of PHI was changed and PHI will be accounted for as a joint operation by the Company. Therefore the below estimates of the expected effect of the standard are presented including the Company's share in relation to its interests in the assets, liabilities and expenses of PHI. IFRS 16 will affect primarily the accounting for the Group’s operating leases (see note 19). The below estimates of impacts from the implementation of IFRS 16 are based on contract terms and discount rates that existed as of December 31, 2018, and under the assumption that they will not change during 2019. Upon the implementation of IFRS 16 on January 1, 2019 the Group expects to recognize right-of-use assets of approximately NIS 660 million, lease liabilities of approximately NIS 690, a charge to accumulated earnings of approximately NIS 20 million, and a deferred tax asset in an immaterial amount. In the consolidated statement of income for 2019 lease expenses are expected to decrease by approximately NIS 150 million, amortization expenses and interest expenses are expected to increase by approximately NIS 160 million, and profit is expected to decrease by an immaterial amount. In the consolidated statement of cash flows for 2019 cash from operating activities is expected to increase by approximately NIS 140 million and cash from financing activities is expected to decrease by approximately NIS 140 million.
(b) Annual Improvements to IFRS Standards 2015-2017 Cycle amended IFRS 11 Joint arrangements and clarified that the party obtaining joint control of a business that is a joint operation should not remeasure its previously held interest in the joint operation. The amendment is effective from January 1, 2019. See note 9 with respect to change in PHI's governance at the beginning of January 2019 and that from then the Company accounts for its rights in the assets of PHI and obligations for the liabilities and expenses of PHI as a joint operation, recognizing its share (50%) in the assets, liabilities, and expenses of PHI, instead of the equity method.
(c) Interpretation 23 Uncertainty over Income Tax Treatments, The interpretation explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. The amendment is effective from January 1, 2019. Its effect on the financial statements iswas not expected to be material.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
a. Critical accounting estimates and assumptions
| (1) | Assessing the useful lives of non-financial assets: |
The useful economic lives of the Group's non-financial assets are an estimate determined by management. The Group defines useful economic life of its assets in terms of the assets' expected utility to the Group. This estimation is based on assumptions of future changes in technology or changes in the Group's intended use of these assets, and experience of the Group with similar assets, and legal or contract periods where relevant. The assets estimated economic useful lives are reviewed, and adjusted if appropriate, at least annually. See also note 2(e) and note 2(f).
Change in accounting estimate: The Company has made an annual examination of the estimated useful economic liveslife of contract costs (see notes 2(n), 2(f)(5)) are an estimate determined by management. Contract costs are amortized in accordancethe license. Based on Company's judgment described above, the Company expects that the license will be renewed at a high level of certainty: the Company estimates that based on its experience and acquaintance with the communications market in Israel, if current conditions continue, there is high probability that the license will be extended for an the additional term of 6 years(*). Following this examination, the estimated useful life of the 2G and 3G frequencies was re-evaluated for an additional period of 6 years(*), thereby ending on February 1, 2028(*). The effect of these changes on the consolidated financial statements, in current and future years is as follows: the amortization expenses of the cellular license were reduced by NIS 15 million in the fourth quarter of 2019, and are expected service period (mainly over 2-3 years), using the portfolio approach. The assets estimated economic useful lives are reviewed,to be reduced by an annual amount of approximately NIS 60 million in 2020 and adjusted if appropriate, at least annually.2021. See also notes 2(f)(1) and note 11.
(*) It should be noted that the MOC's frequencies tender's documents include a draft amendment of the license that amends the additional extension periods from 6 years to 10 years. In case the amendment shall become final, the estimated useful life of the 2G and 3G frequencies will be revised to end by February 1, 2032.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
a. Critical accounting estimates and assumptions (continued)
| (2) | Assessing the recoverable amount for impairment tests of assets with finite useful lives: |
The Group is required to determine at the end of each reporting period whether there is any indication that an asset may be impaired. If indicators for impairment are identified the Group estimates the assets' recoverable amount, which is the higher of an asset's fair value less costs to sell and value in use. The value-in-use calculations require management to make estimates of the projected future cash flows. Determining the estimates of the future cash flows is based on management past experience and best estimate for the economic conditions that will exist over the remaining useful economic life of the Cash Generating Unit (CGU). See also note 2(i).
No indicators for an impairment or reversal of impairment of assets with finite useful lives were identified in 2018.2019.
Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts in future periods. See also note 2(i).
Continued increases in the level of competition for cellular and fixed-line services may bring further downward pressure on prices which may require us to perform further impairment tests of our assets. Such impairment tests may lead to recording additional significant impairment charges, which could have a material negative impact on our operating and profit.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 –CRITICAL– CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
a. Critical accounting estimates and assumptions (continued)
(3)Assessing the recoverable amount of goodwill for impairment tests:
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. The recoverable amount of the fixed linefixed-line segment to which goodwill has been allocated to havehas been determined based on value-in-use calculations. For the purpose of the goodwill impairment tests as of December 31, 2016, 2017, 2018 and 20182019 the recoverable amount was assessed by management with the assistance of external independent experts (BDO Ziv Haft Consulting & Management Ltd.) based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The growth rate represents the long-term average growth rate of the fixed-line communications services business.
The key assumptions used in the December 31, 20182019 test were as follows:
Terminal growth rate | 1.0% | | After-tax discount rate | 9.5% | 8.0% | Pre-tax discount rate | 11.5% | 9.6% |
The impairment test as of December 31, 20182019 was based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts. See also note 13(1) and note 2(h). No impairment charges were recognized with respect to goodwill in 2016, 2017, 2018 and 2018.2019.
Sensitivity Analysis:
The headroom of the fixed line segment recoverable amount over the carrying amount as of December 31, 2016, 2017, 2018 and 20182019 was approximately 23%, 23%21% and 21%42% respectively. Sensitivity analysis was performed for the recoverable amount as of December 31, 20182019 for a change of the after-tax discount rate within the range of ± 10% multiplied by the variable 9.5% (8.6%8% (7.2% to 10.5%8.8%), assuming all other variables constant. Sensitivity analysis was also performed for a change of the terminal permanent growth rate within the range of ± 1% of the variable 1.0% (0% to 2%), assuming all other variables constant. Results showed that no impairment charge is required for both analyses.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
a. Critical accounting estimates and assumptions (continued)
| (4) | Assessing impairment of financial assets: |
The allowance for credit losses for financial assets is based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. Individual receivables which are known to be uncollectable are written off by reducing the carrying amount directly. The other receivables are assessed collectively, grouped based on shared credit risk characteristics and the days past due.
From January 1, 2018, upon the implementation of IFRS 9 the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables and contract assets with and without significant financing components, the Group applies IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and period past due. The expected loss rates are based on the payment profiles of sales, and the corresponding historical credit losses experienced. The historical loss rates are adjusted to reflect current and forward-looking information on factors affecting the ability of the customers to settle the receivables. See notes 7, 6(a)(3), 2(j), 3(1).
| (5) | Considering uncertain tax positions: |
The assessment of amounts of current and deferred taxes requires the Group's management to take into consideration uncertainties that its tax position will be accepted and of incurring any additional tax expenses. This assessment is based on estimates and assumptions based on interpretation of tax laws and regulations, and the Group's past experience. It is possible that new information will become known in future periods that will cause the final tax outcome to be different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. See also notes 2(p) and note 25.
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
| (6) | Considering the likelihood of contingent losses and quantifying possible legal settlements: |
b. Critical judgments in applying the Group's accounting policies
(1) Considering the likelihood of contingent losses and quantifying possible legal settlements:
Provisions are recorded when a loss is considered probable and can be reasonably estimated. Judgment is necessary in assessing the likelihood that a pending claim or litigation against the Group will succeed, or a liability will arise, quantifying the best estimate of final settlement. These judgments are made by management with the support of internal specialists, or with the support of outside consultants such as legal counsel. Because of the inherent uncertainties in this evaluation process, actual results may be different from these estimates. See notes 2(m), 14 and 20.
(2) Considering contracts with customers with multiple performance obligations:F - 43
Some contracts with customers include several performance obligations,
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
Critical accounting estimates and consideration (including any discounts) is allocated to them based their relative stand-alone selling prices.assumptions (continued)
| (7) | Determining leases term and discount rate: |
Commencing January 1, 2019 the stand-alone selling price at contract inception based on observable prices of the type of goods and services in similar circumstances to similar customers. Where these are not directly observable (such as a service or equipment that are sold only in a bundle arrangement), they are estimated based on adjusted market approach or cost-plus expected margin.Group implements IFRS 16 Leases. See also note 2(n)2(o), note 3 and note 19.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not to exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Management determined that most extension options are reasonably certain to be exercised and termination options are reasonably certain not to be exercised. The assessment of reasonable certainty is only revised if a significant event or significant changes in circumstances occur, which affects this assessment, and that is within the control of the lessee.
The lease payments are discounted using the lessee’s incremental borrowing rate, since the interest rate implicit in the lease cannot be readily determined. The lessee’s incremental borrowing rate is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. However, the Group is using the practical expedient of accounting together a portfolio of leases with similar characteristics provided that it is reasonably expected that the effects on the financial statements of applying this standard to the portfolio would not differ materially from applying this Standard to the individual leases within that portfolio, and using a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment). The discount rates were estimated by management with the assistance of an independent external expert.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – SEGMENT INFORMATION
| | New Israeli Shekels | | | | | | | Year ended December 31, 2018* | | | Year ended December 31, 2019* | | | | In millions | | | | | | | Cellular segment | | | Fixed-line segment | | | Elimination | | | Consolidated | | | | | | | | | | | | | | Segment revenue - Services | | | 1,827 | | | | 697 | | | | | | | 2,524 | | | 1,783 | | | 777 | | | | | | 2,560 | | Inter-segment revenue - Services | | | 16 | | | | 155 | | | | (171 | ) | | | | | | 15 | | | 148 | | | (163 | ) | | | | Segment revenue - Equipment | | | 643 | | | | 92 | | | | | | | | 735 | | | | | | | | | | | | | | | | | | Total revenues | | | 2,486 | | | | 944 | | | | (171 | ) | | | 3,259 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Segment cost of revenues - Services | | | 1,435 | | | | 696 | | | | | | | | 2,131 | | | 1,367 | | | 810 | | | | | | 2,177 | | Inter-segment cost of revenues- Services | | | 154 | | | | 17 | | | | (171 | ) | | | | | | 147 | | | 16 | | | (163 | ) | | | | Segment cost of revenues - Equipment | | | 509 | | | | 60 | | | | | | | | 569 | | | | | | | | | | | | | | | | | | Cost of revenues | | | 2,098 | | | | 773 | | | | (171 | ) | | | 2,700 | | | | | | | | | | | | | | | | | | Gross profit | | | 388 | | | | 171 | | | | | | | | 559 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses (3) | | | 343 | | | | 128 | | | | | | | | 471 | | | 334 | | | 134 | | | | | | 468 | | Other income, net | | | 23 | | | | 5 | | | | | | | | 28 | | | | | | | | | | | | | | | | | Operating profit | | | 68 | | | | 48 | | | | | | | | 116 | | | | | | | | | | | | | | | | | Adjustments to presentation of segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | –Depreciation and amortization | | | 442 | | | | 150 | | | | | | | | | | | 542 | | | 209 | | | | | | | | –Other (1) | | | 14 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Segment Adjusted EBITDA (2) | | | 524 | | | | 198 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, 2018*2019* | | | | | | Reconciliation of segments subtotal Adjusted EBITDA to profit for the year | | | | Segments subtotal Adjusted EBITDA(2) | | | 853 | | Depreciation and amortization | | | (751 | ) | Finance costs, net | | | (68 | ) | Income tax expenses | | | **
|
| Other (1) | | | | | Profit for the year | | | | |
* See Note 2(o) regarding the adoption of IFRS16, Leases. For 2019 the impact of the adoption of IFRS 16 was an increase of NIS 141 million in the cellular segment Adjusted EBITDA and an increase of NIS 16 million in the fixed-line segment Adjusted EBITDA. ** Representing an amount of less than NIS 1 million.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – SEGMENT INFORMATION (continued)
| | | | | | Year ended December 31, 2018 | | | | | | | | | | | | | | | | | | | Segment revenue - Services | | | 1,827 | | | | 697 | | | | | | | 2,524 | | Inter-segment revenue - Services | | | 16 | | | | 155 | | | | (171 | ) | | | | | Segment revenue - Equipment | | | | | | | | | | | | | | | | | Total revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Segment cost of revenues - Services | | | 1,435 | | | | 696 | | | | | | | | 2,131 | | Inter-segment cost of revenues- Services | | | 154 | | | | 17 | | | | (171 | ) | | | | | Segment cost of revenues - Equipment | | | | | | | | | | | | | | | | | Cost of revenues | | | | | | | | | | | | | | | | | Gross profit | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses (3) | | | 343 | | | | 128 | | | | | | | | 471 | | Other income, net | | | | | | | | | | | | | | | | | Operating profit | | | | | | | | | | | | | | | | | Adjustments to presentation of segment | | | | | | | | | | | | | | | | | Adjusted EBITDA | | | | | | | | | | | | | | | | | –Depreciation and amortization | | | 442 | | | | 150 | | | | | | | | | | –Other (1) | | | | | | | | | | | | | | | | | Segment Adjusted EBITDA (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, 2018 | | | | | | Reconciliation of segments subtotal Adjusted EBITDA to profit for the year | | | | Segments subtotal Adjusted EBITDA (2) | | | 722 | | Depreciation and amortization | | | (592 | ) | Finance costs, net | | | (53 | ) | Income tax expenses | | | (7 | ) | Other (1) | | | | | Profit for the year | | | | | | | | | |
* See Notes 2(n), 2(f)(5) regarding the adoption of IFRS15, Revenue from Contracts with Customers. In 2018, costs of obtaining contracts with customers were capitalized in the amounts of NIS 62 million and NIS 29 million for the cellular segment and the fixed-line segment, respectively. In 2018, amortization expenses of costs of obtaining contracts with customers for the cellular segment and the fixed-line segment were recorded in the amounts of NIS 36 million and NIS 13 million, respectively.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – SEGMENT INFORMATION (continued)
| | New Israeli Shekels | | | | | | | Year ended December 31, 2017* | | | Year ended December 31, 2017 | | | | In millions | | | | | | | Cellular segment | | | Fixed-line segment | | | Elimination
| | | Consolidated
| | | | | | | | | | | | | | Segment revenue - Services | | | 1,960 | | | | 622 | | | | | | | 2,582 | | | 1,960 | | | 622 | | | | | | 2,582 | | Inter-segment revenue - Services | | | 18 | | | | 155 | | | | (173 | ) | | | | | | 18 | | | 155 | | | (173 | ) | | | | Segment revenue - Equipment | | | 610 | | | | 76 | | | | | | | | 686 | | | | | | | | | | | | | | | | | | Total revenues | | | 2,588 | | | | 853 | | | | (173 | ) | | | 3,268 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Segment cost of revenues - Services | | | 1,470 | | | | 613 | | | | | | | | 2,083 | | | 1,470 | | | 613 | | | | | | 2,083 | | Inter-segment cost of revenues- Services | | | 154 | | | | 19 | | | | (173 | ) | | | | | | 154 | | | 19 | | | (173 | ) | | | | Segment cost of revenues - Equipment | | | 490 | | | | 54 | | | | | | | | 544 | | | | | | | | | | | | | | | | | | Cost of revenues | | | 2,114 | | | | 686 | | | | (173 | ) | | | 2,627 | | | | | | | | | | | | | | | | | | Gross profit | | | 474 | | | | 167 | | | | | | | | 641 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses (3) | | | 367 | | | | 98 | | | | | | | | 465 | | | 367 | | | 98 | | | | | | 465 | | Income with respect to settlement | | | | | | | | | | | | | | | | | | | | | | | | | | | | | agreement with Orange | | | 108 | | | | | | | | | | | | 108 | | | 108 | | | | | | | | | 108 | | Other income, net | | | 29 | | | | 2 | | | | | | | | 31 | | | | | | | | | | | | | | | | | Operating profit | | | 244 | | | | 71 | | | | | | | | 315 | | | | | | | | | | | | | | | | | Adjustments to presentation of segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | –Depreciation and amortization | | | 445 | | | | 135 | | | | | | | | | | | 445 | | | 135 | | | | | | | | –Other (1) | | | 21 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | Segment Adjusted EBITDA (2) | | | 710 | | | | 207 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, 2017*2017 | | | | | | Reconciliation of segments subtotal Adjusted EBITDA to profit for the year | | | | Segments subtotal Adjusted EBITDA (2) | | | 917 | | Depreciation and amortization | | | (580 | ) | Finance costs, net | | | (180 | ) | Income tax expenses | | | (21 | ) | Other (1) | | | | | Profit for the year | | | | |
* See Notes 2(n), 2(f)(5) regarding the early adoption of IFRS15, Revenue from Contracts with Customers. In 2017 costs of obtaining contracts with customers were capitalized in amounts of NIS 64 million and NIS 20 million for the cellular segment and the fixed-line segment, respectively. The adoption of IFRS15 resulted in an increase in amortization expenses in 2017 for the cellular segment and the fixed-line segment in amounts of NIS 11 million and NIS 2 million, respectively.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – SEGMENT INFORMATION (continued) | | New Israeli Shekels | | | | Year ended December 31, 2016 | | | | In millions | | | | Cellular segment | | | Fixed-line segment | | | Elimination | | | Consolidated | | Segment revenue - Services | | | 2,080 | | | | 672 | | | | | | | 2,752 | | Inter-segment revenue - Services | | | 19 | | | | 194 | | | | (213 | ) | | | | | Segment revenue - Equipment | | | 729 | | | | 63 | | | | | | | | 792 | | Total revenues | | | 2,828 | | | | 929 | | | | (213 | ) | | | 3,544 | | | | | | | | | | | | | | | | | | | Segment cost of revenues - Services | | | 1,659 | | | | 617 | | | | | | | | 2,276 | | Inter-segment cost of revenues- Services | | | 192 | | | | 21 | | | | (213 | ) | | | | | Segment cost of revenues - Equipment | | | 596 | | | | 52 | | | | | | | | 648 | | Cost of revenues | | | 2,447 | | | | 690 | | | | (213 | ) | | | 2,924 | | Gross profit | | | 381 | | | | 239 | | | | | | | | 620 | | | | | | | | | | | | | | | | | | | Operating expenses (3) | | | 571 | | | | 118 | | | | | | | | 689 | | Income with respect to settlement | | | | | | | | | | | | | | | | | agreement with Orange | | | 217 | | | | | | | | | | | | 217 | | Other income, net | | | 41 | | | | 4 | | | | | | | | 45 | | Operating profit | | | 68 | | | | 125 | | | | | | | | 193 | | Adjustments to presentation of segment | | | | | | | | | | | | | | | | | Adjusted EBITDA | | | | | | | | | | | | | | | | | –Depreciation and amortization | | | 447 | | | | 148 | | | | | | | | | | –Other (1) | | | 47 | | | | (1 | ) | | | | | | | | | Segment Adjusted EBITDA (2) | | | 562 | | | | 272 | | | | | | | | | |
| | New Israeli Shekels | | | | Year ended December 31, 2016 | | | | In millions | | Reconciliation of segments subtotal Adjusted EBITDA to profit for the year | | | | Segments subtotal Adjusted EBITDA(2)
| | | 834 | | Depreciation and amortization | | | (595 | ) | Finance costs, net | | | (105 | ) | Income tax expenses | | | (36 | ) | Other (1)
| | | (46 | ) | Profit for the year | | | 52 | |
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – SEGMENT INFORMATION (continued)
| (1) | Mainly amortization of employee share based compensation.
|
| (2) | Adjusted EBITDA as reviewed by the CODM represents Earnings before Interest (finance costs, net), Taxes, Depreciation and Amortization (including amortization of intangible assets, deferred expenses-right of use and impairment charges) and Other expenses (mainly amortization of share based compensation). Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Group's historic operating results nor is it meant to be predictive of potential future results. The usage of the term "Adjusted EBITDA" is to highlight the fact that the Amortization includes amortization of deferred expenses – right of use and amortization of employee share based compensation and impairment charges. |
| (3) | Operating expenses include selling and marketing expenses, general and administrative expenses and credit losses. |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of financial risks: credit, liquidity and market risks as part of its normal course of business. The Group's risk management objective is to monitor risks and minimize the possible influence that results from this exposure, according to its evaluations and expectations of the parameters that affect the risks. The Group did not enter into interest rate hedging transactions CPI hedging transactions nor free standing exchange rate forward transactions in 2016, 2017, 2018.2018 or 2019.
1. Risk Management
Risk management is carried out by the financial division under policies and/or directions resolved and approved by the audit committee and the board of directors.
2. Market risks
(a) Description of market risks
Cash flow risk due to interest rate changes and CPI changes
The Group is exposed to fluctuations in the Israeli Consumer Price index (CPI). See also note 19.
Furthermore, the Group's notes payable bearing variable interest rate cause cash flow risks. Based on simulations performed, an increase (decrease) of 1% interest rates during 20182019 in respect of the abovementioned financial instruments would have resulted in an annual increase (decrease) in interest expenses of NIS 43 million.
Foreign exchange risk
The Group's operating profit and cash flows are exposed to currency risk, mainly due to trade receivables and trade payables denominated in USD.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
| a. | a. Financial risk factors (continued) |
2. Market risks (continued)
(a) Description of market risks (continued)
Data regarding the US Dollar and Euro exchange rate and the Israeli CPI:
| | Exchange | | | Exchange | | | | | | Exchange | | | Exchange | | | | | | | rate of one | | | rate of one | | | Israeli | | | rate of one | | | rate of one | | | Israeli | | | | Dollar | | | Euro | | | CPI* | | | | | | | | | | | At December 31: | | | | | | | | | | | | | | | | | | | 2019 | | | NIS 3.456 | | | NIS 3.878 | | | 224.67 points | | 2018 | | NIS 3.748 | | | NIS 4.292 | | | 223.33 points | | | NIS 3.748 | | | NIS 4.292 | | | 223.33 points | | 2017 | | NIS 3.467 | | | NIS 4.153 | | | 221.57 points | | | NIS 3.467 | | | NIS 4.153 | | | 221.57 points | | 2016 | | NIS 3.845 | | | NIS 4.044 | | | 220.68 points | | | Increase (decrease) during the year: | | | | | | | | | | | | | | | | | | | 2019 | | | (7.8)% |
| | (9.6)% |
| | 0.6% |
| 2018 | | | 8.1 | % | | | 3.3 | % | | | 0.8 | % | | 8.1% |
| | 3.3% |
| | 0.8% |
| 2017 | | | (9.8 | )% | | | 2.7 | % | | | 0.4 | % | | (9.8)% |
| | 2.7% |
| | 0.4% |
| 2016 | | | (1.5 | )% | | | (4.8 | )% | | | (0.2 | )% | |
* Index for each reporting period's last month, on the basis of 1993 average = 100 points.
Sensitivity analysis:
An increase (decrease) of 2% in the CPI as at December 31, 2016, 20172019 would have decreased (increased) equity and profit by NIS 9 million and NIS 310 million, for the yearsyear ended December 31, 2016 and 2017 respectively,2019, assuming all other variables remain constant. As atAt December 31, 2018 the company hashad no material liabilities linked to the CPI.
An increase (decrease) of 5% in the USD exchange rate as at December 31, 2016, 20172018 and 20182019 would have decreased (increased) equity and profit by NIS 3 million NIS 3 million and NIS 35 million, for the years ended December 31, 2016, 20172018 and 20182019 respectively, assuming that all other variables remain constant.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
| a. | a. Financial risk factors (continued) |
2. Market risks (continued)
(b) Analysis of linkage terms of financial instruments balances
| | | | | | | | | In or linked to other foreign currencies (mainly EURO) | | | | | | | | | | | | | New Israeli Shekels in millions | | Current assets | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 35 | | | | | | | 264 | | | | | | | 299 | | Short term deposits | | | | | | | | | | 552 | | | | | | | 552 | | Trade receivables** | | | 45 | | | | 12 | | | | 567 | | | | | | | 624 | | Other receivables | | | | | | | | | | | 15 | | | | | | | 15 | | | | | | | | | | | | | | | | | | | | | | Non- current assets | | | | | | | | | | | | | | | | | | | | Trade receivables | | | | | | | | | | | | | | | | | | | | Total assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current liabilities | | | | | | | | | | | | | | | | | | | | | Current maturities of notes payable and | | | | | | | | | | | | | | | | | | | | | borrowings | | | | | | | | | | | 366 | | | | | | | | 366 | | Trade payables** | | | 194 | | | | 12 | | | | 493 | | | | 17 | | | | 716 | | Payables in respect of employees | | | | | | | | | | | 79 | | | | | | | | 79 | | Other payables | | | | | | | | | | | 12 | | | | | | | | 12 | | Lease liabilities | | | 1 | | | | | | | | | | | | 130 | | | | 131 | | | | | | | | | | | | | | | | | | | | | | | Non- current liabilities | | | | | | | | | | | | | | | | | | | | | Notes payable | | | | | | | | | | | 1,276 | | | | | | | | 1,276 | | Borrowings from banks | | | | | | | | | | | 138 | | | | | | | | 138 | | Financial liability at fair value | | | | | | | | | | | 28 | | | | | | | | 28 | | Lease liabilities | | | | | | | | | | | | | | | | | | | | | Total liabilities | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | | | In or linked to USD | | | In or linked to other foreign currencies (mainly EURO) | | | NIS unlinked | | | Total | | | | New Israeli Shekels in millions | | Current assets | | | | | | | | | | | | | Cash and cash equivalents | | | * | | | | * | | | | 416 | | | | 416 | | Trade receivables** | | | 54 | | | | 14 | | | | 588 | | | | 656 | | Other receivables | | | | | | | | | | | 11 | | | | 11 | | | | | | | | | | | | | | | | | | | Non- current assets | | | | | | | | | | | | | | | | | Trade receivables | | | | | | | | | | | 260 | | | | 260 | | Total assets | | | 54 | | | | 14 | | | | 1,275 | | | | 1,343 | | | | | | | | | | | | | | | | | | | Current liabilities | | | | | | | | | | | | | | | | | Current maturities of notes payable and | | | | | | | | | | | | | | | | | borrowings | | | | | | | | | | | 161 | | | | 161 | | Trade payables** | | | 126 | | | | 14 | | | | 571 | | | | 711 | | Payables in respect of employees | | | | | | | | | | | 73 | | | | 73 | | Other payables | | | | | | | | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | Non- current liabilities | | | | | | | | | | | | | | | | | Notes payable | | | | | | | | | | | 1,012 | | | | 1,012 | | Borrowings from banks | | | | | | | | | | | 191 | | | | 191 | | Total liabilities | | | 126 | | | | 14 | | | | 2,009 | | | | 2,149 | |
| | * Representing an amount of less than one million.In or linked to foreign currencies | | | | New Israeli Shekels in millions | | **Accounts that were set-off under enforceable netting arrangements | | | | Trade receivables gross amounts | | | 126 | | Set-off | | | | | Trade receivables, net | | | | | | | | | | Trade payables gross amounts | | | 275 | | Set-off | | | | | Trade payables, net | | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
a. Financial risk factors (continued)
2. Market risks (continued)
(b) Analysis of linkage terms of financial instruments balances (continued)
| | | | | | In or linked to USD | | | In or linked to other foreign currencies (mainly EURO) | | |
NIS unlinked | | | Total | | | | New Israeli Shekels in millions | | Current assets | | | | | | | | | | | | | Cash and cash equivalents | | | * | | | | * | | | | 416 | | | | 416 | | Trade receivables** | | | 54 | | | | 14 | | | | 588 | | | | 656 | | Other receivables | | | | | | | | | | | 11 | | | | 11 | | | | | | | | | | | | | | | | | | | Non- current assets | | | | | | | | | | | | | | | | | Trade receivables | | | | | | | | | | | 260 | | | | 260 | | Total assets | | | 54 | | | | 14 | | | | 1,275 | | | | 1,343 | | | | | | | | | | | | | | | | | | | Current liabilities | | | | | | | | | | | | | | | | | Current maturities of notes payable and | | | | | | | | | | | | | | | | | borrowings | | | | | | | | | | | 161 | | | | 161 | | Trade payables** | | | 126 | | | | 14 | | | | 571 | | | | 711 | | Payables in respect of employees | | | | | | | | | | | 73 | | | | 73 | | Other payables | | | | | | | | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | Non- current liabilities | | | | | | | | | | | | | | | | | Notes payable | | | | | | | | | | | 1,012 | | | | 1,012 | | Borrowings from banks | | | | | | | | | | | 191 | | | | 191 | | Total liabilities | | | 126 | | | | 14 | | | | 2,009 | | | | 2,149 | |
* Representing an amount of less than 1 million. | | | | | | | | | |
| | In or linked to foreign currencies | | | | New Israeli Shekels in millions | | **Accounts that were set-off under enforceable netting arrangements | | | | Trade receivables gross amounts | | | 141 | | Set-off | | | (73 | ) | Trade receivables, net | | | 68 | | | | | | | Trade payables gross amounts | | | 213 | | Set-off | | | (73 | ) | Trade payables, net | | | 140 | |
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
| a. | Financial risk factors (continued)
|
2. Market risks (continued)
(b) Analysis of linkage terms of financial instruments balances (continued)
| | December 31, 2017 | | | | In or linked to USD | | | In or linked to other foreign currencies (mainly EURO) | | | NIS linked to CPI | | | NIS unlinked | | | Total | | | | New Israeli Shekels in millions | | Current assets | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 2 | | | | 4 | | | | | | | 861 | | | | 867 | | Short term deposits | | | | | | | | | | | | | | 150 | | | | 150 | | Trade receivables* | | | 62 | | | | 34 | | | | | | | 712 | | | | 808 | | Other receivables | | | | | | | | | | | | | | 9 | | | | 9 | | | | | | | | | | | | | | | | | | | | | | Non- current assets | | | | | | | | | | | | | | | | | | | | Trade receivables | | | | | | | | | | | | | | 232 | | | | 232 | | Total assets | | | 64 | | | | 38 | | | | | | | 1,964 | | | | 2,066 | | | | | | | | | | | | | | | | | | | | | | Current liabilities | | | | | | | | | | | | | | | | | | | | Current maturities of notes payable and | | | | | | | | | | | | | | | | | | | | borrowings | | | | | | | | | | | 213 | | | | 491 | | | | 704 | | Trade payables* | | | 143 | | | | 32 | | | | | | | | 612 | | | | 787 | | Payables in respect of employees | | | | | | | | | | | | | | | 78 | | | | 78 | | Other payables | | | | | | | | | | | | | | | 21 | | | | 21 | | | | | | | | | | | | | | | | | | | | | | | Non- current liabilities | | | | | | | | | | | | | | | | | | | | | Notes payable | | | | | | | | | | | | | | | 972 | | | | 972 | | Borrowings from banks and others | | | | | | | | | | | | | | | 243 | | | | 243 | | Total liabilities | | | 143 | | | | 32 | | | | 213 | | | | 2,417 | | | | 2,805 | |
| | In or linked to foreign currencies | | | | New Israeli Shekels in millions | | *Accounts that were set-off under enforceable netting arrangements | | | | Trade receivables gross amounts | | | 281 | | Set-off | | | (185 | ) | Trade receivables, net | | | 96 | | | | | | | Trade payables gross amounts | | | 360 | | Set-off | | | (185 | ) | Trade payables, net | | | 175 | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
| a. | a. Financial risk factors (continued) |
2. Market risks (continued)
(c) Details regarding the derivative financial instrumentsliability at fair value
The notional amounts of derivativesfinancial liability at fair value (see note 15 (5)) with respect to Notes series G option warrants as ofat December 31, 2017 and 2018 are as follows, based on2019 is NIS 201 million. The following table describes the amounts of currencies to be received, translated into NIS atchanges in the exchange rates prevailing at each of the reporting dates, respectively:liability during 2019:
| | New Israeli Shekels | | | | December 31 | | | | 2017 | | | 2018 | | | | In millions | | Embedded derivatives pay USD, receive NIS | | | 3 | | | | 1 | |
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
| a. | Financial risk factors (continued)New Israeli Shekels in millions | | | | | | Balance as at January 1, 2019 | | | - | | Issuance | | | 37 | | Finance costs | | | 7 | | Exercise | | | | | Balance as at December 31, 2019 | | | | |
3. Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's trade receivables, from cash and cash equivalents, short-term deposits and other receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group conducts credit evaluations on receivables of certain types over a certain amount, and requires collaterals against them. The impairment requirements are based on an expected credit loss model that replaces the IAS 39 incurred loss model. Accordingly, the financial statements include appropriate allowances for expected credit losses. See also notesnote 2(j)(2) and 4(a)(4)note 4(4).
The face amount of financial assets represents the maximum credit exposure, see note 6(c).
The cash and cash equivalents and short-term deposits are held in leading Israeli commercial banks, rated by Standard & Poor's Maalot at ilAAA/stable.
Short term deposits are unlinked, were deposited for periods of between ilAA+/Stable6 months to ilAAA/stable.18 months, and bear annual fixed interest of between 0.5% and 1.0%.
The trade receivables are significantly widespread, and include individuals and businesses, and therefore have no representing credit rating.
See also note 7 as to the assessment by aging of the trade receivables and related allowance for credit losses.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
| a. | a. Financial risk factors (continued) |
4. Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group's reputation. The Group's policy is to ensure that it has sufficient cash and cash equivalents to meet expected operational expenses and financial obligations.
Maturities of financial liabilities as of December 31, 2018:2019:
| | | | | | | | | | | | | | | | | | | | | New Israeli Shekels in millions | | Principal payments of long term indebtedness: | | | | | | | | | | | | | | | | | | | Notes payable series D | | | 109 | | | | 109 | | | | | | | | | | | | | 218 | | Notes payable series F | | | 204 | | | | 204 | | | | 204 | | | | 409 | | | | | | | 1,021 | | Notes payable series G | | | | | | | | | | | 35 | | | | 70 | | | | 245 | | | | 350 | | Borrowing P | | | 30 | | | | 30 | | | | 29 | | | | | | | | | | | | 89 | | Borrowing Q | | | 23 | | | | 23 | | | | 23 | | | | 33 | | | | | | | | 102 | | Expected interest payments of | | | | | | | | | | | | | | | | | | | | | | | | | long term borrowings and notes | | | | | | | | | | | | | | | | | | | | | | | | | payables | | | 41 | | | | 33 | | | | 27 | | | | 34 | | | | 24 | | | | 159 | | Lease liabilities (undiscounted) | | | 141 | | | | 118 | | | | 99 | | | | 165 | | | | 162 | | | | 685 | | Trade and other payables | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | | 2020 | | | 2021 | | | | | | 2024 | | | Total | | | | New Israeli Shekels in millions | | Principal payments of long term indebtedness: | | | | | | | | | | | | | | | | | | | Notes payable series D | | | 109 | | | | 109 | | | | 109 | | | | | | | | | | 327 | | Notes payable series F | | | | | | | 159 | | | | 159 | | | | 318 | | | | 158 | | | | 794 | | Borrowing P | | | 29 | | | | 29 | | | | 30 | | | | 30 | | | | | | | | 118 | | Borrowing Q | | | 23 | | | | 23 | | | | 23 | | | | 45 | | | | 11 | | | | 125 | | Expected interest payments of | | | | | | | | | | | | | | | | | | | | | | | | | long term borrowings and notes | | | | | | | | | | | | | | | | | | | | | | | | | payables | | | 28 | | | | 23 | | | | 17 | | | | 16 | | | | 2 | | | | 86 | | Trade and other payables | | | 785 | | | | | | | | | | | | | | | | | | | | 785 | | Total | | | 974 | | | | 343 | | | | 338 | | | | 409 | | | | 171 | | | | 2,235 | | Add offering expenses and discounts and premiums | | | | | | | | | | | | | | | | | | | | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | 2,237 | |
Trade payables as of December 31, 2019 include balances in respect of reverse factoring of NIS 41 million that are due between January 2020 and March 2020.
See note 15 in respect of borrowings and notes payable.
| b. | b. Capital risk management |
Credit rating: According to Standard & Poor's Maalot ("S&P Maalot") credit rating, of August 13, 2018,5, 2019, S&P Maalot has reaffirmed the Company's ilA+/Stable credit rating was unchanged.and updated the Company's rating outlook to “Negative”.
See note 15(5)15(6) regarding financial covenants.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued)
| c. | Fair values of financial instruments |
As detailed in note 2(j) the financial instruments are categorized as following:
Fair Value through Profit or Loss (FVTPL); Amortized Cost (AC). See also note 15 in respect of borrowings and notes payable and note 7 with respect to trade receivables.
The financial instruments that are categorized FVTPL are mandatorily measured at FVTPL are derivative financial instruments.instruments and financial liability at fair value. Their fair values are calculated by discounting estimated future cash flows based on the terms and maturity of each contract and using forward rates for a similar instrument at the measurement date. All significant inputs in this technique are observable market data and rely as little as possible on entity specific estimates, – this method matches the "Level 2" fair value measurement level hierarchy, see also note 6(a)(2)(c).
There were no transfers between fair value levels during the year.
Carrying amounts and fair values of financial assets and liabilities, and their categories:
| | | December 31, 2017 | | | December 31, 2018 | | | Category | | Carrying amount | | | Fair value | | | Interest rate used (***) | | | Carrying amount | | | Fair value | | | Interest rate used (***) | | | | | New Israeli Shekels in millions | | Assets | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | AC | | | 867 | | | | 867 | | | | | | | 416 | | | | 416 | | | | | Short term deposits | AC | | | 150 | | | | 150 | | | | | | | | | | | | | | | | Trade receivables | AC | | | 1,040 | | | | 1,040 | | | | 4.47 | % | | | 916 | | | | 916 | | | | 4.52 | % | Other receivables (**) | AC | | | 9 | | | | 9 | | | | | | | | 11 | | | | 11 | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | Notes payable series C | AC | | | 213 | | | | 219 | | | Market quote | | | | | | | | | | | | | | Notes payable series D | AC | | | 435 | | | | 443 | | | Market quote | | | | 327 | | | | 332 | | | Market quote | | Notes payable series F | AC | | | 650 | | | | 659 | | | Market quote | | | | 794 | | | | 786 | | | Market quote | | Trade and other payables (**) | AC | | | 865 | | | | 865 | | | | | | | | 785 | | | | 785 | | | | | | Borrowing K | AC | | | 75 | | | | 75 | | | | 3.71 | % | | | | | | | | | | | | | Borrowing L | AC | | | 200 | | | | 200 | | | | 4.25 | % | | | | | | | | | | | | | Borrowing O | AC | | | 100 | | | | 110 | | | | 4.34 | % | | | | | | | | | | | | | Borrowing P | AC | | | 125 | | | | 125 | | | | 2.38 | % | | | 118 | | | | 120 | | | | 1.54 | % | Borrowing Q | AC | | | 125 | | | | 125 | | | | 2.5 | % | | | 125 | | | | 127 | | | | 2.05 | % | Interest payable (**) | AC | | | 21 | | | | 21 | | | | | | | | * | | | | * | | | | | | Derivative financial instruments | FVTPL | | | | | | | | | | | | | | | | | | | | | | | | | | Level 2 | | | * | | | | * | | | | | | | | * | | | | * | | | | | |
| (*) | Representing an amount of less than NIS 1 million. |
| (**) | The fair value of these financial instruments equals their carrying amounts, as the impact of discounting is not significant.
|
| (***) | The fair values of the notes payable quoted market prices at the end of the reporting period are within level 1 of the fair value hierarchy. The fair values of other instruments under AC categories were calculated based on observable weighted average of interest rates derived from quoted market prices of the Group's notes payable and bank quotes of rates of similar terms and nature, are within level 2 of the fair value hierarchy. |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | New Israeli Shekels in millions | | Assets | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | AC | | | 416 | | | | 416 | | | | | | | 299 | | | | 299 | | | | | Short term deposits | AC | | | | | | | | | | | | | | 552 | | | | 552 | | | | | Trade receivables | AC | | | 916 | | | | 916 | | | | 4.52 | % | | | 874 | | | | 876 | | | | 4.00 | % | Other receivables (**) | AC | | | 11 | | | | 11 | | | | | | | | 16 | | | | 16 | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | Notes payable series D | AC | | | 327 | | | | 332 | | | Market quote | | | | 218 | | | | 219 | | | Market quote | | Notes payable series F | AC | | | 794 | | | | 786 | | | Market quote | | | | 1,021 | | | | 1,040 | | | Market quote | | Notes payable series G | AC | | | | | | | | | | | | | | | 350 | | | | 383 | | | Market quote | | Financial liability at fair value | FVTPL | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 | | | | | | | | | | | | | | | 28 | | | | 28 | | | | | | Trade and other payables (**) | AC | | | 785 | | | | 785 | | | | | | | | 800 | | | | 800 | | | | | | Borrowing P | AC | | | 118 | | | | 120 | | | | 1.54 | % | | | 89 | | | | 90 | | | | 1.42 | % | Borrowing Q | AC | | | 125 | | | | 127 | | | | 2.05 | % | | | 102 | | | | 105 | | | | 1.42 | % | Lease liabilities | AC | | | | | | | | | | | | | | | 617 | | | | 623 | | | | 2.12 | % | Derivative financial instruments | FVTPL | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 2 | | | * | | | | * | | | | | | | | * | | | | * | | | | | |
(*) Representing an amount of less than NIS 1 million. (**) The fair value of these financial instruments equals their carrying amounts, as the impact of discounting is not significant. (***) The fair values of the notes payable quoted market prices at the end of the reporting period are within level 1 of the fair value hierarchy. The fair values of other instruments under AC categories were calculated based on observable weighted average of interest rates derived from quoted market prices of the Group's notes payable and bank quotes of rates of similar terms and nature, are within level 2 of the fair value hierarchy.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – TRADE RECEIVABLES
| | New Israeli Shekels | | | | | | | December 31 | | | | | | | 2017 | | | 2018 | | | | | | | | | | In millions | | | | | Trade (current and non-current) | | | 1,260 | | | | 1,130 | | | 1,130 | | | 1,061 | | Deferred interest income (note 2(n)) | | | (27 | ) | | | (26 | ) | | (26 | ) | | (25 | ) | Allowance for credit loss | | | (193 | ) | | | (188 | ) | | | | | | | | | | | | 1,040 | | | | 916 | | | | | | | | | | Current | | | 808 | | | | 656 | | | | | | | | | | Non – current | | | 232 | | | | 260 | | | | | | | | | |
Non-current trade receivables bear no interest. These balances are in respect of equipment sold in installments (13-36 monthly payments (mainly 36)). The amount is computed on the basis of the interest rate relevant at the date of the transaction (2017: 4.47% - 4.72%) (2018: 4.22% - 4.53%) (2019: 4.00% - 4.66%).
See also notesnote 2(j), 4(a)(4) and note 4(4).
| (b) | Impairment of financial assets: |
The changes in the allowance for credit losses for the years ended December 31, 2016, 2017, 2018 and 20182019 are as follows:
| | New Israeli Shekels | | | | | | | Year ended | | | | | | | 2016 | | | 2017 | | | 2018 | | | | | | | | | | | | | In millions | | | | | Balance at beginning of year | | | 169 | | | | 190 | | | | 193 | | | 190 | | | 193 | | | 188 | | Receivables written-off during the year as uncollectible | | | (61 | ) | | | (49 | ) | | | (35 | ) | | Receivables written-off during the year as | | | | | | | | | | | uncollectible | | | (49 | ) | | (35 | ) | | (44 | ) | Charge or expense during the year* | | | 82 | | | | 52 | | | | 30 | | | | | | | | | | | | | | Balance at end of year | | | 190 | | | | 193 | | | | 188 | | | | | | | | | | | | | |
(*) Equivalent to net impairment losses on financial and contract assets, as presented in the statement of income as Credit losses.
See notesnote 6(a)(3), regarding trade receivables credit risk.
Allowance for credit losses resulting from services provided under operating lease are not separately disclosed due to immateriality.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – TRADE RECEIVABLES (continued)
(b) Allowance for credit losses (continued)
The aging of gross trade receivables and their respective allowance for credit losses as of January 1, 2018 andat December 31, 2018 isand 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | verage expected loss rate | | | | | | | | | Average expected loss rate | | | | | | | | Not passed due | | | 2 | % | | | 900 | | | | 19 | | | | 2 | % | | | 860 | | | | 20 | | Less than one year | | | 56 | % | | | 94 | | | | 53 | | | | 54 | % | | | 107 | | | | 58 | | More than one year | | | 85 | % | | | | | | | | | | | 89 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | New Israeli Shekels | | | New Israeli Shekels | | | | January 1, 2018 | | | December 31, 2018 | | | | In millions | | | In millions | | | | Average expected loss rate | | |
Gross
| | |
Allowance
| | | Average expected loss rate | | |
Gross
| | |
Allowance
| | Not passed due | | | 1 | % | | | 977 | | | | 13 | | | | 2 | % | | | 900 | | | | 19 | | Less than one year | | | 50 | % | | | 112 | | | | 56 | | | | 56 | % | | | 94 | | | | 53 | | More than one year | | | 73 | % | | | 171 | | | | 124 | | | | 85 | % | | | 136 | | | | 116 | | | | | | | | | 1,260 | | | | 193 | | | | | | | | 1,130 | | | | 188 | |
NOTE 8 – INVENTORY
| | | | | | | | | | | | | | | | | | | Handsets and devices | | | 60 | | | | 73 | | Accessories and other | | | 6 | | | | 10 | | Spare parts | | | 23 | | | | 26 | | ISP modems, routers, servers and related equipment | | | | | | | | | | | | | | | | | | | | | | | | | | | Write-offs recorded | | | | | | | | | Cost of inventory recognized as expenses and included in cost of revenues for the year ended | | | | | | | | | Cost of inventory used as fixed assets | | | | | | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – INVENTORY
| | New Israeli Shekels | | | | December 31 | | | | 2017 | | | 2018 | | | | In millions | | Handsets and devices | | | 60 | | | | 60 | | Accessories and other | | | 8 | | | | 6 | | Spare parts | | | 19 | | | | 23 | | ISP modems, routers, servers and related equipment | | | 6 | | | | 9 | | | | | 93 | | | | 98 | | | | | | | | | | | Write-offs recorded | | | 5 | | | | 4 | | Cost of inventory recognized as expenses and included in cost of revenues for the year ended | | | 558 | | | | 586 | | Cost of inventory used as fixed assets | | | 30 | | | | 8 | |
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – INVESTMENT IN PHI
Network sharing agreement and right of use
On November 8, 2013 the Company and Hot Mobile Ltd. ("Hot Mobile") (together: "the Parties") entered into a 15-year network sharing agreement (“NSA”), which was approved by the Antitrust Commissioner , subject to certain conditions, and by the Ministry of Communications. Pursuant to the NSA, the Parties created a 50-50 limited partnership - P.H.I. Networks (2015) Limited Partnership (hereinafter "PHI"), which operates and develops a radio access network shared by the Parties, starting with a pooling of the Parties radio access network infrastructures creating a single shared pooled radio access network (the "Shared Network"). The Parties also established a 50-50 company limited by shares under the name Net 4 P.H.I Ltd., to be the general partner of the limited partnership.
In February 2016, HOT Mobile exercised its option under the NSA to advance the payment date of a onetime amount of NIS 250 million ("Lump Sum"), which was received by the Group in 2016. Therefore in accordance the NSA from April 2016 onward (i) each party bears half of the expenditures relating to the Shared Network, and (ii) the bearing of the operating costs of the Shared Network is according to a pre-determined mechanism, according to which one half of the operating costs is shared equally by the Parties, and one half is divided between the Parties according to the relative volume of traffic consumption of each party in the Shared Network (the "Capex-Opex Mechanism"). The Lump Sum is treated by the Group as payments for rights of use of the Group's network and therefore recognized as deferred revenue which is amortized to revenues in the income statement over a period of eight years, which is determined to be the shorter of the expected period of the arrangement or the expected life of the related assets, see note 22(a).
The NSA term will be automatically extended for consecutive terms of five years each, unless either party provided the other party with prior notice of at least two years prior to the commencement of the respective extended term. At any time after the eighth anniversary of the NSA's effective date (i.e. following April 2023), either party may provide the other party with two years termination notice, and terminate the NSA, without cause, effective as of the end of the said two-year period. On the expiry of the NSA, other than following a material breach, the Parties shall divide the network between themselves according to a mechanism provided by the NSA, based on the Parties then-respective interests in PHI, with priority that each party shall first receive its own assets.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – INVESTMENT IN PHI (continued)
The associates of the Group as of December 31, 2018, of which the Group holds 50% of ownership interests are: P.H.I. Networks (2015) Limited Partnership ("PHI"), and Net 4 P.H.I Ltd. (see also note 2(c)(2)). Both are incorporated and operate in Israel. As of December 31, 2018 the board of directors of Net 4 P.H.I Ltd. consistsconsisted of 3 directors nominated by the Company, 3 directors nominated by Hot Mobile and one independent director who acts as a chairman. Net 4 P.H.I Ltd controls PHI. This governance provides that the Company does not control PHI nor does it have joint control over it, and the Company accounts for its investment in PHI according to the equity method. Set out below is summarized financial information for the associates.
| | As at December 31 | | | | 2017 | | | 2018 | | PHI's accounts 100%: | | NIS in millions | | | NIS in millions | | Current assets | | | 119 | | | | 137 | | Non-current assets | | | 218 | | | | 312 | | Current liabilities | | | 117 | | | | 135 | | Non-current liabilities | | | 218 | | | | 312 | | Net assets | | | 2 | | | | 2 | | | | | | | | | | | Supplemental information relating to associates: | | | | | | | | | Commitments for operating leases and operating | | | | | | | | | expenses | | | 443 | | | | 781 | | Commitments to purchase fixed assets | | | 2 | | | | 6 | | Guarantees made to third parties | | | 1 | | | | 1 | |
| | | | PHI's accounts 100%: | | | | Current assets | | | 137 | | Non-current assets | | | 312 | | Current liabilities | | | 135 | | Non-current liabilities | | | | | Net assets | | | | | | | | | | Supplemental information relating to associates: | | | | | Commitments for operating leases and operating | | | | | expenses | | | 781 | | Commitments to purchase fixed assets | | | 6 | | Guarantees made to third parties | | | 1 | |
| | Year ended December 31 | | | | 2017 | | | 2018 | | PHI's accounts 100%: | | NIS in millions | | | NIS in millions | | | | | | | | | Summarized statement of income | | | | | | | Revenue | | | 477 | | | | 495 | | Pre-tax Profit | | | - | | | | - | | After-tax profit | | | - | | | | - | | Total comprehensive income | | | - | | | | - | | | | | | | | | | | Reconciliation to carrying amount: | | | | | | | | | Opening net assets of PHI | | | 2 | | | | 2 | | Profit for the period | | | - | | | | - | | Closing net assets of PHI | | | 2 | | | | 2 | | | | | | | | | | | Carrying amount in PHI's net assets: Group's share (50%) | | | 1 | | | | 1 | |
| | Year ended December 31, 2018 | | PHI's accounts 100%: | | | | Summarized statement of income | | | | Revenue | | | 495 | | Pre-tax Profit | | | - | | After-tax profit | | | | | Total comprehensive income | | | | | | | | | | Reconciliation to carrying amount: | | | | | Opening net assets of PHI | | | 2 | | Profit for the period | | | | | Closing net assets of PHI | | | | | Carrying amount in PHI's net assets: Group's share (50%) | | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – INVESTMENT IN PHI (continued)
Balances and transactions with PHI – related party:
| | | | | | | | | | | | | | | | | | | Deferred expenses - Right of use | | | | | | | | | Current assets (liabilities) | | | | | | | | | Non-current investment in PHI | | | | | | | | | Other non-current assets (liabilities) | | | | | | | | |
The Company provided a guarantee to PHI's debt in an amount of NIS 50 million.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – INVESTMENT IN PHI (continued)
Subsequent event: changeChange in PHI's governance
At the beginning of January 2019 an amendment to the NSA agreement between the Company and Hot Mobile was signed and communicated to the MoC and Anti-trust regulator which, among other things, cancelled the position of the independent director mentioned above who acted as a chairman, and no consideration was transferred between the Parties in relation to this matter. The amendment did not change ownership shares, nor the CAPEX-OPEX mechanism described above. As a result of the amendment the control over PHI thereafter is borne 50-50 by the Company and Hot Mobile, each nominates an equal number of directors (3 directors). Since, thereafter, decisions about the Relevant Activities of PHI require the unanimous consent of the Parties, PHI is considered a joint arrangement controlled by the Company and Hot Mobile (joint control).
The activities of the joint arrangement are primarily designed for the provision of output to the Parties. The joint arrangement terms give the Parties rights to the assets, and obligations for the liabilities and expenses of PHI. Furthermore the Parties have rights to substantially all of the economic benefits of PHI's assets. PHI's liabilities are in substance satisfied by the cash flows received from the Parties, as the Parties are substantially the source of cash flows contributing to the continuity of the operations of PHI. Starting January 1, 2019 the Company will accountaccounts for its rights in the assets of PHI and obligations for the liabilities and expenses of PHI as a joint operation, recognizing its share (50%) in the assets, liabilities, and expenses of PHI, instead of the equity method. Starting January 1, 2019 payments with respect to rights to use PHI's fixed assets (see note 2(g)) will beare presented in the statement of cash flows as cash used in investing activities instead of cash payments for deferred expenses used in operating activities.
The following table presents the Company's share (50%) in PHI's statement of financial position items as of December 31, 2018, for which the Company's investment in PHI's net assets is recognized under the equity method. Starting January 1, 2019 they will bethat are consolidated into the financial statements as the Company’s share in a joint operation.operation:
| | New Israeli Shekels in millions | | | | | | | | Company's share (50%) in PHI's accounts** | | | | | | | | CURRENT ASSETS | | | | | | | | | | Cash and cash equivalents | | | * | | | | | | | * | | Current assets | | | 69 | | | | (62 | ) | | | 7 | | | | | | | | | | | | | | | NON CURRENT ASSETS | | | | | | | | | | | | | Property and equipment and intangible assets | | | 142 | | | | | | | | 142 | | Lease – right of use | | | 355 | | | | | | | | 355 | | | | | | | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | | | | | Current borrowings from banks | | | 13 | | | | | | | | 13 | | Trade payables and other current liabilities | | | 55 | | | | | | | | 55 | | Lease liabilities | | | 65 | | | | | | | | 65 | | | | | | | | | | | | | | | NON CURRENT LIABILITIES | | | | | | | | | | | | | Lease liabilities | | | 290 | | | | | | | | 290 | | Deferred revenues | | | 142 | | | | (142 | ) | | | - | | | | | | | | | | | | | | | EQUITY | | | 1 | | | | (1 | ) | | | - | |
| | New Israeli Shekels in millions | | | | December 31, 2018** | | | | Company's share (50%) in PHI's accounts | | | Intercompany elimination | | | Total | | CURRENT ASSETS | | | | | | | | | | Cash and cash equivalents | | | * | | | | | | | * | | Current assets | | | 69 | | | | (51 | ) | | | 18 | | | | | | | | | | | | | | | NON CURRENT ASSETS | | | | | | | | | | | | | Property and equipment and intangible assets | | | 142 | | | | | | | | 142 | | Other non-current assets | | | 14 | | | | (14 | ) | | | - | | | | | | | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | | | | | Current borrowings from banks | | | 13 | | | | | | | | 13 | | Trade payables | | | 52 | | | | | | | | 52 | | Other current liabilities | | | 3 | | | | | | | | 3 | | | | | | | | | | | | | | | NON CURRENT LIABILITIES | | | | | | | | | | | | | Dismantling and restoring sites obligation | | | 14 | | | | | | | | 14 | | Deferred revenues | | | 142 | | | | (131 | ) | | | 11 | | | | | | | | | | | | | | | EQUITY | | | 1 | | | | (1 | ) | | | - | |
* Representing an amount of less than NIS 1 million. ** FromCertain intercompany balances were eliminated in the first quarterpresentation of 2019, the Company's interestsshare in 50% of PHI's accounts will include a right-of-use non-current asset of approximately NIS 360 million, a lease current liability of approximately NIS 70 million, and a lease non-current liability of approximately NIS 290 million, recognized upon the implementation of IFRS 16 leases see note 3(2)(a).accounts.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 – PROPERTY AND EQUIPMENT
| | | | | Computers and information systems | | | Optic fibers and related assets | | | Subscribers equipment and installations | | | Property, leasehold improvements, furniture and equipment | | | | | | | New Israeli Shekels in millions | | | | | | | | | | | | | | | | | | | | | Balance at January 1, 2017 | | | 2,003 | | | | 207 | | | | 508 | | | | 29 | | | | 134 | | | | 2,881 | | Additions in 2017 | | | 55 | | | | 7 | | | | 97 | | | | 109 | | | | 6 | | | | 274 | | Disposals in 2017 | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Additions in 2018 | | | 48 | | | | 11 | | | | 122 | | | | 146 | | | | 10 | | | | 337 | | Disposals in 2018 | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share in PHI P&E included as of Jan 1, 2019 | | | 171 | | | | 2 | | | | | | | | | | | | | | | | 173 | | Additions in 2019 | | | 91 | | | | 3 | | | | 146 | | | | 172 | | | | 6 | | | | 418 | | Disposals in 2019 | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at January 1, 2017 | | | 1,224 | | | | 146 | | | | 218 | | | | 7 | | | | 79 | | | | 1,674 | | Depreciation in 2017 | | | 204 | | | | 22 | | | | 36 | | | | 24 | | | | 15 | | | | 301 | | Disposals in 2017 | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation in 2018 | | | 174 | | | | 13 | | | | 39 | | | | 66 | | | | 12 | | | | 304 | | Disposals in 2018 | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share in PHI P&E included as of Jan 1, 2019 | | | 33 | | | | 1 | | | | | | | | | | | | | | | | 34 | | Depreciation in 2019 | | | 170 | | | | 13 | | | | 45 | | | | 99 | | | | 9 | | | | 336 | | Disposals in 2019 | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | |
| | Communication network | | | Computers and information systems | | | Optic fibers and related assets | | | Subscribers equipment and installations | | | Property, leasehold improvements, furniture and equipment | | | Total | | | | New Israeli Shekels in millions | | Cost | | | | | | | | | | | | | | | | | | | Balance at January 1, 2016 | | | 2,187 | | | | 264 | | | | 486 | | | | 12 | | | | 203 | | | | 3,152 | | Additions in 2016 | | | 51 | | | | 17 | | | | 22 | | | | 17 | | | | 9 | | | | 116 | | Disposals in 2016 | | | 235 | | | | 74 | | | | | | | | | | | | 78 | | | | 387 | | Balance at December 31, 2016 | | | 2,003 | | | | 207 | | | | 508 | | | | 29 | | | | 134 | | | | 2,881 | | | | | | | | | | | | | | | | | | | | | | | | | | | Additions in 2017 | | | 55 | | | | 7 | | | | 97 | | | | 109 | | | | 6 | | | | 274 | | Disposals in 2017 | | | 165 | | | | 60 | | | | 1 | | | | | | | | 3 | | | | 229 | | Balance at December 31, 2017 | | | 1,893 | | | | 154 | | | | 604 | | | | 138 | | | | 137 | | | | 2,926 | | | | | | | | | | | | | | | | | | | | | | | | | | | Additions in 2018 | | | 48 | | | | 11 | | | | 122 | | | | 146 | | | | 10 | | | | 337 | | Disposals in 2018 | | | 322 | | | | 17 | | | | 11 | | | | 4 | | | | 24 | | | | 378 | | Balance at December 31, 2018 | | | 1,619 | | | | 148 | | | | 715 | | | | 280 | | | | 123 | | | | 2,885 | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated depreciation | | | | | | | | | | | | | | | | | | | | | | | | | Balance at January 1, 2016 | | | 1,231 | | | | 191 | | | | 183 | | | | 1 | | | | 132 | | | | 1,738 | | Depreciation in 2016 | | | 223 | | | | 29 | | | | 35 | | | | 6 | | | | 23 | | | | 316 | | Disposals in 2016 | | | 230 | | | | 74 | | | | | | | | | | | | 76 | | | | 380 | | Balance at December 31, 2016 | | | 1,224 | | | | 146 | | | | 218 | | | | 7 | | | | 79 | | | | 1,674 | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation in 2017 | | | 204 | | | | 22 | | | | 36 | | | | 24 | | | | 15 | | | | 301 | | Disposals in 2017 | | | 165 | | | | 60 | | | | 1 | | | | | | | | 3 | | | | 229 | | Balance at December 31, 2017 | | | 1,263 | | | | 108 | | | | 253 | | | | 31 | | | | 91 | | | | 1,746 | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation in 2018 | | | 174 | | | | 13 | | | | 39 | | | | 66 | | | | 12 | | | | 304 | | Disposals in 2018 | | | 321 | | | | 17 | | | | 11 | | | | 3 | | | | 24 | | | | 376 | | Balance at December 31, 2018 | | | 1,116 | | | | 104 | | | | 281 | | | | 94 | | | | 79 | | | | 1,674 | | | | | | | | | | | | | | | | | | | | | | | | | | | Carrying amounts, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | | | 779 | | | | 61 | | | | 290 | | | | 22 | | | | 55 | | | | 1,207 | | At December 31, 2017 | | | 630 | | | | 46 | | | | 351 | | | | 107 | | | | 46 | | | | 1,180 | | At December 31, 2018 | | | 503 | | | | 44 | | | | 434 | | | | 186 | | | | 44 | | | | 1,211 | |
For depreciation and amortization presentation in the statement of income see note 22.
| | | | | | | | | | | | | | | | | | | | | | Cost additions include capitalization of salary and employee related expenses | | | | | | | | | | | | | | | | | | | | | | | | | |
| | New Israeli Shekels | | | | Year ended December 31 | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | Cost additions include capitalization of salary and employee related expenses | | | 29 | | | | 33 | | | | 38 | | | | | | | | | | | | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 – INTANGIBLE AND OTHER ASSETS
Intangible assets with finite economic useful lives: | | | | | Costs of obtaining contracts with customers(2) | | | | | | | | | Subscriber acquisition and retention costs | | | | | | | | | | New Israeli Shekels in millions | | | | | | | | | | | | | | | | | | | | | | | | At January 1, 2017 | | | 2,123 | | | | - | | | | 73 | | | | 276 | | | | 13 | | | | 634 | | | | 3,119 | | Transition to IFRS 15(2) | | | | | | | 2 | | | | | | | | | | | | (13 | ) | | | | | | | (11 | ) | Additions in 2017 | | | | | | | 84 | | | | | | | | | | | | | | | | 59 | | | | 143 | | Disposals in 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Additions in 2018 | | | | | | | 91 | | | | 3 | | | | | | | | | | | | 68 | | | | 162 | | Disposals in 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share in PHI's accounts included as of Jan 1, 2019 | | | | | | | | | | | | | | | | | | | | | | | 5 | | | | 5 | | Additions in 2019 | | | | | | | 95 | | | | | | | | 6 | | | | | | | | 59 | | | | 160 | | Disposals in 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At January 1, 2017 | | | 1,676 | | | | - | | | | 62 | | | | 237 | | | | 11 | | | | 340 | | | | 2,326 | | Transition to IFRS 15(2) | | | | | | | | | | | | | | | | | | | (11 | ) | | | | | | | (11 | ) | Amortization in 2017 | | | 88 | | | | 15 | | | | 11 | | | | 18 | | | | | | | | 107 | | | | 239 | | Disposals in 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization in 2018 | | | 88 | | | | 49 | | | | | | | | 18 | | | | | | | | 86 | | | | 241 | | Disposals in 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share in PHI's accounts included as of Jan 1, 2019 | | | | | | | | | | | | | | | | | | | | | | | 2 | | | | 2 | | Amortization in 2019(3) | | | 73 | | | | 79 | | | | * | | | | 2 | | | | | | | | 87 | | | | 241 | | Disposals in 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million.
| | | | | | | | | | | | | | | | | | | | | | (1) Cost additions include capitalization of salary and employee related expenses | | | | | | | | | | | | |
| | Licenses | | | Costs of obtaining contracts with customers(2) | | | Trade name | | | Customer relationships | | | Subscriber acquisition and retention costs | | | Computer software(1) | | | Total | | | | New Israeli Shekels in millions | | Cost | | | | | | | | | | | | | | | | | | | | | | At January 1, 2016 | | | 2,123 | | | | | | | 73 | | | | 276 | | | | 13 | | | | 662 | | | | 3,147 | | Additions in 2016 | | | | | | | | | | | | | | | | | | 4 | | | | 82 | | | | 86 | | Disposals in 2016 | | | | | | | | | | | | | | | | | | 4 | | | | 110 | | | | 114 | | At December 31, 2016 | | | 2,123 | | | | - | | | | 73 | | | | 276 | | | | 13 | | | | 634 | | | | 3,119 | | Transition to IFRS 15(2) | | | | | | | 2 | | | | | | | | | | | | (13 | ) | | | | | | | (11 | ) | Additions in 2017 | | | | | | | 84 | | | | | | | | | | | | | | | | 59 | | | | 143 | | Disposals in 2017 | | | | | | | | | | | 73 | | | | | | | | | | | | 128 | | | | 201 | | At December 31, 2017 | | | 2,123 | | | | 86 | | | | - | | | | 276 | | | | - | | | | 565 | | | | 3,050 | | Additions in 2018 | | | | | | | 91 | | | | 3 | | | | | | | | | | | | 68 | | | | 162 | | Disposals in 2018 | | | | | | | 2 | | | | | | | | | | | | | | | | 141 | | | | 143 | | At December 31, 2018 | | | 2,123 | | | | 175 | | | | 3 | | | | 276 | | | | - | | | | 492 | | | | 3,069 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated amortization | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At January 1, 2016 | | | 1,588 | | | | | | | | 41 | | | | 219 | | | | 10 | | | | 333 | | | | 2,191 | | Amortization in 2016 | | | 88 | | | | | | | | 21 | | | | 18 | | | | 5 | | | | 117 | | | | 249 | | Disposals in 2016 | | | | | | | | | | | | | | | | | | | 4 | | | | 110 | | | | 114 | | At December 31, 2016 | | | 1,676 | | | | - | | | | 62 | | | | 237 | | | | 11 | | | | 340 | | | | 2,326 | | Transition to IFRS 15(2) | | | | | | | | | | | | | | | | | | | (11 | ) | | | | | | | (11 | ) | Amortization in 2017 | | | 88 | | | | 15 | | | | 11 | | | | 18 | | | | | | | | 107 | | | | 239 | | Disposals in 2017 | | | | | | | | | | | 73 | | | | | | | | | | | | 128 | | | | 201 | | At December 31, 2017 | | | 1,764 | | | | 15 | | | | - | | | | 255 | | | | - | | | | 319 | | | | 2,353 | | Amortization in 2018 | | | 88 | | | | 49 | | | | | | | | 18 | | | | | | | | 86 | | | | 241 | | Disposals in 2018 | | | | | | | 2 | | | | | | | | | | | | | | | | 140 | | | | 142 | | At December 31, 2018 | | | 1,852 | | | | 62 | | | | - | | | | 273 | | | | - | | | | 265 | | | | 2,452 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Carrying amounts, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | | | 447 | | | | - | | | | 11 | | | | 39 | | | | 2 | | | | 294 | | | | 793 | | At December 31, 2017 | | | 359 | | | | 71 | | | | - | | | | 21 | | | | - | | | | 246 | | | | 697 | | At December 31, 2018 | | | 271 | | | | 113 | | | | 3 | | | | 3 | | | | - | | | | 227 | | | | 617 | |
(2) See adoption of IFRS 15 Revenues from Contracts with Customers in note 2(n) and note 2(f)(4).
| | New Israeli Shekels | | | | Year ended December 31 | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | (1) Cost additions include capitalization of salary and employee related expenses | | | 36 | | | | 44 | | | | 54 | | | | | | | | | | | | | | | (2) See adoption of IFRS 15 Revenues from Contracts with Customers in note 2(n) and note 2(f)(5) | | | | | | | | | | | | | | | | | | | | | | | | | | For depreciation and amortization in the statement of income see note 22. | | | | | | | | | | | | |
(3) Change in accounting estimate: the useful life of the cellular license was extended to end by February 1, 2028, see notes 2(f)(1) and 4(1).
For depreciation and amortization in the statement of income see note 22.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 – DEFERRED EXPENSES – RIGHT OF USE
| | New Israeli Shekels in millions | | Cost | | | | Balance at January 1, 2016 | | | 436 | | Additional payments in 2016 | | | 80 | | Balance at December 31, 20162017 | | | 516 | | Additional payments in 2017 | | | | | Balance at December 31, 2017 | | | 629 | | Additional payments in 2018 | | | | | Balance at December 31, 2018 | | | 736 | | Share in PHI's accounts included as of Jan 1, 2019 | | | (169 | ) | Additional payments in 2019 | | | | | Balance at December 31, 2019 | | | | | | | | | | Accumulated amortization and impairment | | | | | Balance at January 1, 2016 | | | 383 | | Amortization in 2016 | | | 30 | | Balance at December 31, 20162017 | | | 413 | | Amortization in 2017 | | | | | Balance at December 31, 2017 | | | 453 | | Amortization in 2018 | | | | | Balance at December 31, 2018 | | | 500 | | Share in PHI's accounts included as of Jan 1, 2019 | | | (38 | ) | Carrying amount, net at December 31, 2016Amortization in 2019 | | | 103 | | Balance at December 31, 2019 | | | | | | | | | | Carrying amount, net at December 31, 2017 | | | | | Current | | | 43 | | Non-current | | | 133 | | | | | | | Carrying amount, net at December 31, 2018 | | | | | Current | | | | | Non-current | | | | | | | | | | Carrying amount, net at December 31, 2019 | | | | | Current | | | | | Non-current | | | | |
See also notes 17(4)note 2(g) and note 2(g)17(4).
The amortization and impairment charges are charged to cost of revenues in the statement of income.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – IMPAIRMENT TESTS
| (1) | Goodwill impairment tests in the fixed-line segment |
Goodwill in the fixed-line segment is allocated to a single group of CGUs which constitute all the operations of the fixed-line segment, in an amount of NIS 407 million.
For the purpose of the goodwill impairment tests in the fixed-line segment as of December 31, 2016, 2017, 2018 and 20182019 the recoverable amount was assessed by management with the assistance of an external independent experts (BDO Ziv Haft Consulting & Management Ltd.) based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a five-year period. Cash flows beyond the five-year period to be generated from continuing use are extrapolated using estimated growth rates. The growth rate represents the long-term average growth rate of the fixed-line communications services business. The key assumptions used are as follows:
| | As of December 31, | | | | | | | 2016 | | | 2017 | | | 2018 | | | | | | | | | | | Terminal growth rate | | | 0.5 | % | | | 0.9 | % | | | 1.0 | % | | 0.9 | % | | 1.0 | % | | 1.0 | % | After-tax discount rate | | | 9.8 | % | | | 9.3 | % | | | 9.5 | % | | 9.3 | % | | 9.5 | % | | 8 | % | Pre-tax discount rate | | | 11.9 | % | | | 11.2 | % | | | 11.5 | % | | 11.2 | % | | 11.5 | % | | 9.6 | % |
The impairment tests in the fixed-line segment as of December 31, 2016, 2017, 2018 and 20182019 were based on assessments of financial performance and future strategies in light of current and expected market and economic conditions. Trends in the economic and financial environment, competition and regulatory authorities' decisions, or changes in competitors’ behavior in response to the economic environment may affect the estimate of recoverable amounts. As a result of the impairment tests, the Group determined that no goodwill impairment existed as of December 31, 2016, 2017, 2018 and 2018.2019. See also note 4(a)(3)4(3) and note 2(h).
| (2) | Impairment tests of assets with finite useful lives |
No indicators for impairment or reversal of impairment of assets with finite useful lives were identified in 2016, 2017, 2018 and 2018.2019.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – PROVISIONS
| | Legal claims (see note 20) | | | | | | Dismantling and restoring sites obligation | | | Group's share in PHI's provisions (see note 9) | | | | New Israeli Shekels in millions | | Balance as at January 1, 2019 | | | 62 | | | | 2 | | | | 13 | | | | 14 | | Share in PHI's accounts included as of January 1, 2019 | | | | | | | | | | | 14 | | | | (14 | ) | Additions during the year | | | 3 | | | | 3 | | | | * | | | | | | Finance costs | | | | | | | | | | | * | | | | | | Decrease during the year | | | | | | | | | | | | | | | | | Balance as at December 31, 2019 | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as at December 31, 2018 | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | |
| | Group's share in PHI's provisions (see note 9) | | | Dismantling and restoring sites obligation | | | Legal claims (see note 20) | | | Equipment warranty | | | | New Israeli Shekels in millions | | Balance as at January 1, 2018 | | | 7 | | | | 27 | | | | 72 | | | | 3 | | Additions during the year | | | 7 | | | | * | | | | 18 | | | | 6 | | Finance costs | | | | | | | * | | | | | | | | | | Decrease during the year | | | | | | | **(14 | ) | | | (28 | ) | | | (7 | ) | Balance as at December 31, 2018 | | | 14 | | | | 13 | | | | 62 | | | | 2 | | Non-current | | | 14 | | | | 13 | | | | | | | | | | Current | | | | | | | | | | | 62 | | | | 2 | | | | | | | | | | | | | | | | | | | Balance as at December 31, 2017 | | | 7 | | | | 27 | | | | 72 | | | | 3 | | Non-current | | | 7 | | | | 27 | | | | | | | | | | Current | | | | | | | | | | | 72 | | | | 3 | |
* Representing an amount of less than NIS 1 million ** Decrease in the provision due to assignment of cell-sites to PHI
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 – BORROWINGS–BORROWINGS AND NOTES PAYABLE
| (1) | Borrowings and Notes Payable |
The Group's long term debt as of December 31, 20182019 consists of borrowings from leading Israeli commercial banks and notes payable. The Group may, at its discretion, execute an early repayment of the borrowings, subject to certain conditions, including that the Group shall reimburse the lender for losses sustained by it as a result of the early repayment. The reimbursement is mainly based on the difference between the interest rate that the Group would otherwise pay and the current market interest rate on the early repayment date.
The notes payable are unsecured, non-convertible and listed for trade on the TASE. The notes payable have been rated ilA+, on a local scale, by Standard & Poor’s Maalot.
Composition as of December 31, 2018:2019:
| Annual interest rate | Notes payable series D | 'Makam'(*) plus 1.2% | Notes payable series F (**) | 2.16% fixed | Notes payable series G (***) | 4% fixed | Borrowing P (received in 2017) | 2.38% fixed | Borrowing Q (received in 2017) | 2.5% fixed |
(*) 'Makam' is a variable interest that is based on the yield of 12 month government bonds issued by the Government of Israel. The interest is updated on a quarterly basis.
The interest rates paid (in annual terms, and including the additional interest of 1.2%) for the period from October 1, 20182019 to December 30, 20182019 was 1.423%1.398%.
(**) See also note 15 (2) and 15 (4). (***) See also note 15 (2) and 15 (5).
See note 6(a)(4) as to the balances and maturities of the borrowings and the notes payable. See note 6(c) as to the fair value of the borrowings and the notes payable. See note 15 (5)15(6) regarding financial covenants. The following table details the changes in debentures, including cash flows from financing activities:
| | | | | Movement in 2018 | | | | | | |
As at December 31, 2017 | | | Cash flows used in financing activities, net | | | Non cash movements | | | As at December 31, 2018
| | | | CPI adjustments and other finance costs | | | | New Israeli Shekels in millions | | Non-current borrowings, including current maturities | | | 625 | | | | (382 | ) | | | | | | 243 | | Notes payable, including current maturities | | | 1,298 | | | | (174 | ) | | | (1 | ) | | | 1,123 | | Interest payable | | | 21 | | | | (69 | ) | | | 48 | | | | * | | | | | 1,944 | | | | (625 | ) | | | 47 | | | | 1,366 | |
* Representing anAs of December 31, 2019, PHI has a short term credit facility with a leading Israeli commercial bank in the amount of less than NIS 1 million100 million. The Group's share in this facility is 50%. The facility is restricted for use by PHI only. As of December 31, 2019 no funds were drawn from this facility.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 –BORROWINGS AND NOTES PAYABLE (continued)
| (1) | Borrowings and Notes Payable (continued): |
The following table details the changes in financial liabilities, including cash flows from financing activities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows used in financing activities, net | | | Share in PHI's accounts included as at Jan. 1, 2019 | | | Adoption of IFRS 16 as at Jan. 1, 2019 | | | CPI adjustments and other | | | | | | | | Current borrowings | | | | | | (13 | ) | | | 13 | | | | | | | | | | | | | | Non-current borrowings, including current maturities | | | 243 | | | | (52 | ) | | | | | | | | | | | | | | | | 191 | | Notes payable, including current maturities | | | 1,123 | | | | 453 | | | | | | | | | | | 13 | | | | | | | 1,589 | | Financial liability at fair value | | | | | | | 37 | | | | | | | | | | | (9 | ) | | | | | | 28 | | Interest payable | | | * | | | | (37 | ) | | | | | | | | | | 45 | | | | | | | 8 | | Lease liability | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Cash flows used in financing activities, net | | | | | | | | | | CPI adjustments and other finance costs | | | | New Israeli Shekels in millions | | Non-current borrowings, including current maturities | | | 625 | | | | (382 | ) | | | | | | 243 | | Notes payable, including current maturities | | | 1,298 | | | | (174 | ) | | | (1 | ) | | | 1,123 | | Interest payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Representing an amount of less than NIS 1 million.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – BORROWINGS AND NOTES PAYABLE (continued)
| (2) | Notes payable issuance |
In July 2017, the Company issued Series F Notes in a principal amount of NIS 255 million, payable in 5 equal annual installments on June 25 of each of the years 2020 through 2024. The principal bears fixed annual interest of 2.16%, payable on a semiannual basis on June 25 and December 25.
In December 2017, the Company expanded Series F Notes in a principal amount of NIS 389 million under the same conditions.
In December 2018, following an agreement from September 2017 with certain Israeli institutional investors, the Company expanded Series F Notes in a principal amount of NIS 150 million under the same conditions.conditions of the original series.
The Company has engaged to expand Series F Notes in the future, see note 15(4) below.
In January 2019, the Company issued a new Series G Notes, in a principal amount of NIS 225 million, payable as follows: 4 annual installments of NIS 22.5 million each, payable in June of each of the years 2022 through 2025, NIS 45 million payable in June 2026 and NIS 90 million payable in June 2027. The principal bears fixed annual interest of 4%, payable annually on June 25 of each year.
Regarding exercise of option warrants which are exercisable for Series G Notes see note 15 (5).
| (3) | Borrowings early repayments |
In March 2018 the Company early repaid borrowings O and L in a total principal amount of NIS 300 million. In addition, the Company early repaid borrowing K in June 2018, in a principal amount of NIS 75 million.
The early repayments resulted in additional finance costs of NIS 18 million recorded in December 2017 and NIS 9 million recorded in March 2018.
| (4) | Notes payable issuance commitments |
In December 2017, the Company entered into an agreement with certain Israeli institutional investors, according to which the Company undertook to issue to the institutional investors, and the institutional investors undertook to purchase from the Company, in the framework of a private placement, in an aggregate principal amount of NIS 126.75 million of additional Series F debenturesNotes in December 2019.
In January 2018, the Company entered into an agreement with certain Israeli institutional investors, according to which the Company undertook to issue to the institutional investors, and the institutional investors undertook to purchase from the Company, in the framework of a private placement, in an aggregate principal amount of NIS 100 million of additional Series F debenturesNotes in December 2019.
In December 2019, the Company issued the aforementioned additional Series F Notes in a principal amount of NIS 226.75 million.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – BORROWINGS AND NOTES PAYABLE (continued)
| (5) | Private placement of option warrants |
In April 2019, the Company issued in a private placement two series of untradeable option warrants that are exercisable for the Company's Series G Notes. The exercise period of the first series is between July 1, 2019 and May 31, 2020 and of the second series is between July 1, 2020 and May 31, 2021. The exercise price is NIS 88 for each Series G notes principal amount of NIS 100. The Series G Notes that will be allotted upon the exercise of an option warrant will be identical in all their rights to the Company's Series G Notes immediately upon their allotment, and will be entitled to any payment of interest or other benefit, the effective date of which is due after the allotment date. The Notes that will be allotted as a result of the exercise of option warrants will be registered on the TASE. The total amount received by the Company on the allotment date of the option warrants was NIS 37 million.
In July 2019, following partial exercise of option warrants from the first series, the Company issued Series G Notes in a principal amount of NIS 38.5 million.
In November 2019, following partial exercise of option warrants from the first series, the Company issued Series G Notes in a principal amount of NIS 86.5 million.
In February 2020, following partial exercise of option warrants from the first series, the Company issued Series G Notes in a principal amount of NIS 15.1 million.
The total remaining consideration expected to be received (after the exercises described above), excluding consideration received for the allotment of the options, in respect of full exercise (and assuming that there will be no change to the exercise price) is approximately NIS 163 million.
Regarding Series F Notes, Series G Notes (issued in January 2019) and borrowings P and Q, the Company is required to comply with a financial covenant that the ratio of Net Debt to Adjusted EBITDA shall not exceed 5. Compliance will be examined and reported on a quarterly basis. For the purpose of the covenant, Adjusted EBITDA is calculated as the sum total for the last 12 month period, excluding adjustable one-time items. As of December 31, 2018,2019, the ratio of Net Debt to Adjusted EBITDA was 1.3.1.1.
Additional stipulations mainly include:
Shareholders' equity shall not decrease below NIS 400 million and no dividends will be declared if shareholders' equity will be below NIS 650 million regarding Series F notes and borrowing P. Shareholders' equity shall not decrease below NIS 600 million and no dividends will be declared if shareholders' equity will be below NIS 750 million regarding Series G notes. The Company shall not create floating liens subject to certain terms. The Company has the right for early redemption under certain conditions. With respect to notes payable series F and series G: the Company shall pay additional annual interest of 0.5% in the case of a two-notch downgrade in the Notes rating and an additional annual interest of 0.25% for each further single-notch downgrade, up to a maximum additional interest of 1%; the Company shall pay additional annual interest of 0.25% during a period in which there is a breach of the financial covenant; debt rating will not decrease below BBB- for a certain period. In any case, the total maximum additional interest for Series F and G, shall not exceed 1.25% or 1%, respectively.
The Group was in compliance with the financial covenant and the additional stipulations for the year 2018.
| (6) | Notes payable buy back |
The Company's series B, C and E notes, which are traded on the Tel Aviv Stock Exchange, were partially repurchased in 2016 (these notes are considered legally extinguished) as follows:
In March 2016, the Company repurchased approximately NIS 43 million par value of notes payable series B, at an average transaction price of approximately 1.104 NIS par value. The total amount paid was approximately NIS 48 million.
In March 2016, the Company repurchased approximately NIS 131 million par value of notes payable series E, at an average transaction price of approximately 1.073 NIS par value. The total amount paid was approximately NIS 141 million.
In April 2016, the Company repurchased approximately NIS 54 million par value of notes payable series C, at an average transaction price of approximately 1.136 NIS par value. The total amount paid was approximately NIS 61.5 million.
The buy-back costs of the aforementioned repurchases were recorded in finance expenses in an amount of NIS 12 million in 2016.2019.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
Israeli labor laws and agreements require payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. See also note 2(k).
| (1) | Defined contribution plan |
The Group had contributed NIS 1417 million, NIS 1720 million and NIS 2023 million for the years 2016, 2017, 2018 and 20182019 respectively, in accordance with Section 14 of the Israeli Severance Pay Law. See also note 2(k)(i)(1).
Liability for employee rights upon retirement, net is presented as non-current liability.
The amounts recognized in the statement of financial position, in respect of a defined benefit plan (see note 2(k)(i)(2)) and changes during the year in the obligation recognized for post-employment defined benefit plans were as follows:
| | New Israeli Shekels in millions | | | New Israeli Shekels in millions | | | | Present value of obligation | | | Fair value of plan assets | | | Total
| | | Present value of obligation | | | Fair value of plan assets | | | | | At January 1, 2017 | | | 142 | | | | (103 | ) | | | 39 | | | Current service cost | | | 11 | | | | | | | | 11 | | | Past service cost | | | 4 | | | | | | | | 4 | | | Interest expense (income) | | | 4 | | | | (3 | ) | | | 1 | | | Employer contributions | | | | | | | (9 | ) | | | (9 | ) | | Benefits paid | | | (25 | ) | | | 17 | | | | (8 | ) | | Remeasurements: | | | | | | | | | | | | | | Experience loss | | | 2 | | | | | | | | 2 | | | Loss (gain) from change in financial assumptions | | | 1 | | | | | | | | 1 | | | Return on plan assets | | | | | | | (1 | ) | | | (1 | ) | | At December 31, 2017 | | | 139 | | | | (99 | ) | | | 40 | | | At January 1, 2018 | | | | | | | | | | | | | | Current service cost | | | 11 | | | | | | | | 11 | | | 11 | | | | | | 11 | | Interest expense (income) | | | 3 | | | | (1 | ) | | | 2 | | | 3 | | | (1 | ) | | 2 | | Employer contributions | | | | | | | (8 | ) | | | (8 | ) | | | | | (8 | ) | | (8 | ) | Benefits paid | | | (11 | ) | | | 7 | | | | (4 | ) | | (11 | ) | | 7 | | | (4 | ) | Remeasurements: | | | | | | | | | | | | | | | | | | | | | | Experience loss | | | 2 | | | | | | | | 2 | | | 2 | | | | | | 2 | | Return on plan assets | | | | | | | (3 | ) | | | (3 | ) | | | | | | | | | | | | | At December 31, 2018 | | | 144 | | | | (104 | ) | | | 40 | | | | | | | | | | | | | | Current service cost | | | 12 | | | | | | 12 | | Interest expense (income) | | | 4 | | | (2 | ) | | 2 | | Employer contributions | | | | | | (9 | ) | | (9 | ) | Benefits paid | | | (14 | ) | | 10 | | | (4 | ) | Remeasurements: | | | | | | | | | | | Experience loss | | | 4 | | | | | | 4 | | Return on plan assets | | | | | | | | | | | | | | At December 31, 2019 | | | | | | | | | | | | | |
Remeasurements are recognized in the statement of comprehensive income.
The expected contribution to the defined benefit plan during the year ending December 31, 20192020 is approximately NIS 87 million.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT (continued)
| (2) | Defined benefit plan (continued) |
The principal actuarial assumptions used were as follows:
| | December 31 | | | | | | | 2017 | | | 2018 | | | | | | | | Interest rate weighted average | | | 2.73 | % | | | 3.29 | % | | 3.29 | % | | 2.33 | % | Inflation rate weighted average | | | 1.11 | % | | | 1.62 | % | | 1.62 | % | | 1.49 | % | Expected turnover rate | | | 9%-56 | % | | | 9%-56 | % | | 9%-56 | % | | 9%-56 | % | Future salary increases | | | 1%-6 | % | | | 1%-6 | % | | 1%-6 | % | | 1%-6 | % |
The sensitivity of the defined benefit obligation to changes in the principal assumptions is:
| | | | | | | | | | Increase of 10% of the assumption | | | Decrease of 10% of the assumption | | Interest rate | | | (0.6 | ) | | | 0.4 | | Expected turnover rate | | | 0.1 | | | | (0.1 | ) | Future salary increases | | | 0.5 | | | | (0.4 | ) |
| | December 31, 2018 | | | | NIS in millions | | | | Increase of 10% of the assumption | | | Decrease of 10% of the assumption | | Interest rate | | | (0.8 | ) | | | 0.6 | | Expected turnover rate | | | 0.3 | | | | (0.4 | ) | Future salary increases | | | 0.4 | | | | (0.4 | ) |
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognized within the statement of financial position. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.
The defined benefit plan exposes the Group to a number of risks, the most significant are asset volatility, and a risk that salary increases will be higher than expected in the actuarial calculations. The assets are invested in provident funds, managed by managing companies and are subject to laws and regulations, and supervision (including investment portfolio) of the Capital Markets, Insurance and Saving Division of the Israeli Ministry of Finance.
Expected maturity analysis of undiscounted defined benefits as at December 31, 2018:2019:
| | | | 2020 | | | 25 | | 2021 | | | 22 | | 2022 | | | 12 | | 2023 and 2024 | | | 20 | | 2025 and thereafter | | | | | | | | | |
| | NIS in millions | | 2019 | | | 27 | | 2020 | | | 20 | | 2021 | | | 12 | | 2022 and 2023 | | | 20 | | 2024 and thereafter | | | 87 | | | | | 166 | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 – COMMITMENTS
| (1) | Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. For the years 2016, 2017, 2018 and 20182019 the Company recorded expenses in a total amount of approximately NIS 6463 million, NIS 6376 million and NIS 7679 million, respectively. Under the above Regulations should the Company choose to return a frequency, such payment is no longer due. Commencing August 2016, the total amount of frequency fees of both the Company and Hot Mobile under the regulations are divided between the Company and Hot Mobile, through PHI ,according to the OPEX-CAPEX mechanism (see also note 9). |
| (2) | At December 31, 2018,2019, the Group is committed to acquire property and equipment and software elements for approximately NIS 8336 million. |
| (3) | At December 31, 2018,2019, the Group is committed to acquire inventory in an amount of approximately NIS 817136 million. |
The Group signed long-term agreements with service providers to receive indefeasible Rights of Use (ROU) of international capacities through submarine infrastructures (see note 12), most extendable until 2030. As of December 31, 2018,2019, the Group is committed to pay for capacities over the following years an amount of NIS 188153 million (excluding maintenance fees) as follows:
| | New Israeli Shekels in millions | | | New Israeli Shekels in millions | | 2019 | | | 46 | | | 2020 | | | 45 | | | 51 | | 2021 | | | 47 | | | 49 | | 2022 | | | 47 | | | 47 | | 2023 | | | 3 | | | | | | | | | 188 | | | | | |
In addition, under the terms of the ROU agreements, as of December 31, 20182019 the Group is committed to pay annual maintenance fees during the usage period. The total aggregated expected maintenance fee for the years 20192020 to 2023 is approximately NIS 4023 million. Some payments under the ROU agreements are linked to the USD.
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – COMMITMENTS (continued)
As of December 31, 2018,2019, the Group has provided bank guarantees in respect of licenses (see note 1(c)) in an amount of NIS 10089 million, in addition to bank guarantees in favor of other parties in an aggregate amount of approximately NIS 2322 million. Therefore, the total bank guarantees provided by the Group as of December 31, 20182019 is NIS 123111 million. In addition, the Company provided a guarantee to PHI's debtcredit facility in an amount of NIS 50 million. In PHI's credit facility is not used as at December 31, 2019 due to cancellation of licenses, the Company is in the process to cancel guarantees in an aggregate amount of NIS 10 million (see note 1(c))also notes 9 and 15).
| (6) | Covenants and negative pledge – see note 15(5)15(6). |
| (7) | See note 15(4) with respect of notes payable issuance commitments. |
| (8) | Operating leases – see note 19. |
| (9) | See note 9 with respect to network sharing and PHI's commitments. |
NOTE 18 – DEFERRED INCOME WITH RESPECT TO SETTLEMENT AGREEMENT WITH ORANGE
In June 2015, the Company announced that it had entered into a settlement agreement with Orange Brand Services Ltd ("Orange") which created a new framework for their relationship and provided both Partner and Orange the right to terminate the brand license agreement which had been in force since 1998. In accordance with the terms of the settlement agreement, the Company received advance payments in a total of €90 million during 2015.
As set forth in the settlement agreement, the advance payments were recognized and reconciled evenly on a quarterly basis over a period until the second quarter of 2017, against contingent marketing, sales, customer services and other expenses that were incurred over this period. The income was recorded in the Company’s income statement under “Income with respect to settlement agreement with Orange". For 2015, 2016 and 2017, the Company recognized income with respect to the settlement agreement in an amount of NIS 61 million, NIS 217 million and NIS 108 million, respectively. Based on a legal opinion obtained by the Company, the advance payments are considered compensation payments and are therefore not subject to VAT charges.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – OPERATING LEASES
The Group has entered into operating lease agreements as follows:leases the following assets (as a lessee) (see also notes 2(o) and 3):
| (1) | Buildings: The Group leases its headquarter facilities in Rosh Ha-ayin, Israel, with a total of approximately 51,177 gross square meters (including parking lots). The lease term is until the end of 2024. The rental payments are linked to the Israeli CPI. |
The Group also leases call centers, retail stores and service centers. The leases for each site have different lengths and specific terms. The lease agreements are for periods of two to ten years. The Group has options to extend some lease contract periods for up to twenty years (including the original lease periods). Substantially all of the rental payments are linked to the Israeli CPI and a few are linked to the dollar. Some of the extension options include an increase of the lease payment in a range of 2%-10%.
| (2) | The Group also leases call centers, retail stores and service centers. The leases for each site have different lengths and specific terms. The lease agreements are for periods of two to ten years. The Group has options to extend some lease contract periods for up to twenty years (including the original lease periods). Some of the rental payments are linked to the dollar or to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%. |
| (3) | Cell sites: Lease agreements in respect of cell sites and switching stations throughout Israel are for periods of two to ten years. The Company has an option to extend some of the lease contract periods for up to ten years (including the original lease periods). SomeSubstantially all of the rental payments fees are linked to the dollar orIsraeli CPI and a few are linked to the Israeli CPI.dollar. Some of the extension options include an increase of the lease payment mostly in a range of 2%-10%. During 20172018 and 20182019 significant portion of cell sites were assigned to PHI. |
| (4)(3) | As of December 31, 2018 operating lease agreements in respect ofVehicles: The Group leases vehicles are for periods of up to three years. The rental payments are linked to the Israeli CPI. |
| (5) | Non-cancelable minimum operating lease rentals (undiscounted) in respect of the Company's leases are payable including option periods which are reasonably certain are as follows: |
| | New Israeli Shekels | | | | December 31, 2018 | | | | In millions | | 2019 | | | 76 | | 2020-2021 | | | 114 | | 2022-2023 | | | 87 | | 2024-2025 | | | 51 | | 2026-2027 | | | 18 | | 2028 and thereafter | | | 26 | | | | | 372 | |
The extension options are negotiated by management to provide flexibility in managing the leased asset portfolio and align with the Group's business needs. Management exercised judgment and generally determined that the extension options are reasonably certain to be exercised. Generally, the Group's obligations under its leases are secured by the lessor's title to the leased assets. Set out below are the carrying amounts of right of use assets and lease liabilities recognized and the movements during the year: | | New Israeli Shekels in millions | | | | | | | | | | | | | | | | | | | | | | Balance as at January 1, 2019 | | | 252 | | | | 362 | | | | 42 | | | | 683 | | Amortization charges | | | (41 | ) | | | (78 | ) | | | (27 | ) | | | | | Accretion of interest | | | | | | | | | | | | | | | 20 | | Non-cash movements | | | 11 | | | | 46 | | | | 15 | | | | 73 | | Lease payments (principal) cash outflow | | | | | | | | | | | | | | | (139 | ) | Lease payments (interest) cash outflow | | | | | | | | | | | | | | | | | Balance as at December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current | | | | | | | | | | | | | | | | | Non-Current | | | | | | | | | | | | | | | | |
In 2017 and 2018 rent expenses in amounts of NIS 178 million and NIS 169 million respectively were recorded according to the previous accounting policy under IAS 17. With respect to PHI's operating expenses commitment seeSee note 9.
| (6) | The rental expenses for the years ended December 31, 2016, 2017 and 2018 were approximately NIS 213 million, NIS 178 million, and NIS 169 million, respectively. Commencing April 2016, rent expenses of cell sites of the Company, Hot Mobile and PHI are divided between the Company and Hot Mobile, through PHI, according to the OPEX-CAPEX mechanism (see also note 9).
| 6(a)(4) for maturity analysis of undiscounted lease liability as of December 31, 2019. PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – LEASES (continued)
Non-cancelable minimum operating lease rentals (undiscounted) in respect of the Company's leases were payable including option periods which are reasonably certain in previous years according to the previous accounting policy under IAS 17:
| | | | | | 2019 | 76 | 2020-2021 | 114 | 2022-2023 | 87 | 2024-2025 | 51 | 2026-2027 | 18 | 2028 and thereafter | | | |
| | | | | | 2018 | 158 | 2019 | 100 | 2020 | 77 | 2021 | 59 | 2022-2023 | 100 | 2024-2025 | 52 | 2026-2027 | 13 | 2028 and thereafter | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – LAWSUITS AND LITIGATIONS
Total provision recorded in the financial statements in respect of all lawsuits against the Group amounted to NIS 6242 million at December 31, 2018.2019.
Described below are the main litigation and claims against the Group:
This category includes class actions and motions for the recognition of these lawsuits as class actions with respect to, among others, alleged claims regarding charges and claims regarding alleged breach of the Consumer Protection Law, the Privacy Protection Law, the Communications Law (Telecommunications and Broadcasting), license provisions, other legal provisions and engagement agreements with customers.
Described hereunder are the outstanding consumer class actions and motions for the recognition of these lawsuits as class actions, detailed according to the amount claimed, as of the date of approval of these financial statements:
| | | | | Total claims amount (NIS million) | | Up to NIS 100 million | | | 17 | | | | 430 | | NIS 101 - 400 million | | | 4 | | | | 1,050 | | NIS 401 million - NIS 1 billion | | | 2 | | | | 1,405 | | Unquantified claims | | | 10 | | | | - | | Total | | | 33 | | | | 2,885 | |
| | Number of claims | | | Total claims amount (NIS million) | | Up to NIS 100 million | | | 23 | | | | 582 | | NIS 101 - 400 million | | | 5 | | | | 1,118 | | NIS 401 million - NIS 1 billion | | | 2 | | | | 1,405 | | Unquantified claims | | | 17 | | | | - | | Total | | | 47 | | | | 3,105 | |
With respect to five claims mentioned in the table above in a total amount of NIS 104 million, the parties filed requests to approve settlement agreements. With respect to six additional claims, the court approved settlement agreements and withdrawals. Provision regarding these claims is included in the above-mentioned provision.
With respect to 4 of thefour claims mentioned in the table above, the court approved these claims as class actions:
| 1. | On September 7, 2010, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner unlawfully charged its customers for services of various content providers which are sent through text messages (SMS). The total amount claimed from Partner was estimated by the plaintiffs to be approximately NIS 405 million. The claim was certified as a class action in December 2016. In January 2017, the plaintiffs filed an appeal to the Supreme Court, regarding the definition of the group of customers. In November 2018, the Supreme Court dismissed the appeal and the claim was reverted back to the District Court. In February 2020 a settlement agreement was filed for the Court's approval in an immaterial amount. Partner estimates that even if the claim will be decided in favor of the approved group of customers (as defined by the District Court), the damages that Partner will be required to pay for, will be immaterial. |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – LAWSUITS AND LITIGATIONS (continued)
| 1. | Consumer claims (continued) |
| 2. | On April 3, 2012, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner breached its license conditions in connection with benefits provided to customers that purchased handsets from third parties. The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 22 million. In September 2014, Thethe Court approved the motion and recognized the lawsuit as a class action. In July 2017, the parties filed a request to the Court to approve a settlement agreement. In December 2019, the Court approved the settlement agreement which Partner estimates that theis currently implementing. The damages that Partner will beis required to pay for will beare immaterial. |
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – LAWSUITS AND LITIGATIONS (continued)
| 1. | Consumer claims (continued)
|
| 3. | On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner required their customers to purchase a router and/or a call adaptor and/or terminal equipment as a condition for using its fixed-line telephony services, an action which would not be in accordance with the provisions of its licenses. The total amount claimed against Partner is estimated by the plaintiff to be approximately NIS 116 million. In February 2019, the Court approved the request to certify the claim as a class action.action with certain changes. In March 2019, Partner filed an appeal of this decision. In February 2020, the Supreme Court dismissed the appeal request that was filed and the claim was reverted back to the District Court. Partner estimates that even if the claim will be decided in favor of the approved group of customers, the damages that Partner will be required to pay for will be immaterial. |
| 4. | On November 12, 2015, a claim and a motion to certify the claim as a class action were filed against 012 Smile. The claim alleges that 012 Smile required their customers to purchase a router and/or a call adaptor and/or terminal equipment as a condition for using its fixed-line telephony services, an action which would not be in accordance with the provisions of its licenses. The total amount claimed against 012 Smile is estimated by the plaintiff to be approximately NIS 64 million. In February 2019, the Court approved the request to certify the claim as a class action.action with certain changes. In March 2019, the Company filed an appeal of this decision. In February 2020, the Supreme Court dismissed the appeal request that was filed and the claim was reverted back to the District Court. The Company estimates that even if the claim will be decided in favor of the approved group of customers, the damages that the Company will be required to pay for will be immaterial. |
With respect to 3 claims mentioned in the table above in a total amount of NIS 56 million (other than the 4 claims mentioned above), the parties filed requests to approve settlement agreements and with respect to 4 additional claims in a total amount of NIS 358 million (other than the 4 claims mentioned above), the court approved settlement agreements and withdrawals.
| 2. | Employees and other claims |
This category includes 1 claim: In March 2014, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleged that the Company did not include in the severance pay calculation for its employees various components that constitute an addition to the salary for the severance pay calculation and thereby acted unlawfully. The total amount claimed from Partner was estimated by the plaintiff to be approximately NIS 100 million. In November 2015, the plaintiff filed an amended claim and a motion to certify the claim as a class action. In November 2017, the parties filed a revised settlement agreement which was approved by the Court in July 2018. Partner is currently implementing the amended settlement agreement. The damages that Partner is required to pay are immaterial.
In addition to all the above mentioned claims the Group is a party to various claims arising in the ordinary course of its operations.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – LAWSUITS AND LITIGATIONS (continued)
| 1. | Consumer claims (continued) |
In 2019 Partner completed its obligations in accordance with the settlement agreement. The damages that Partner was required to pay were immaterial.
In addition to all the above mentioned claims the Group is a party to various claims arising in the ordinary course of its operations.
| B. | Contingencies in respect of building and planning procedures |
Section 197 of the Building and Planning Law states that a property owner has the right to be compensated by a local planning committee for reductions in property value as a result of a new building plan.
In January 2006, the Non-ionizing Radiation Law was published, amending the Planning and Building Law so that local Planning and Building committees must require indemnification letters against reduction in property value from the cellular operators requesting building permits.
Accordingly, on January 3, 2006, the National Council for Planning and Building published an interim decision conditioning the issuance of building permits for cell site permits by local planning and building councils upon provision of a 100% indemnification undertaking by the cellular operators. This decision shall remain in effect until it is replaced with an amendment to the National Zoning Plan 36. Between January 3, 2006 and December 31, 20182019 the Company provided the local authorities with 490459 indemnification letters as a pre-condition for obtaining building permits.
In case the Company shall be required to make substantial payments under the indemnity letters, it could have an adverse effect on the Company's financial results.
According to the company’s management estimation and based on its legal counsel, a provision in the financial statement was not included.
The Company assumes that the requirement to provide indemnification letters might require it to change locations of sites to different, less suitable locations and to dismantle some of its sites. These changes in the deployment of the sites might have an adverse effect on the extent, quality and capacity of the network coverage.
| C. | Investigation by the Israeli Tax Authority |
The Israeli Tax Authority is conducting an investigation that involves document collection and the questioning of among others, several Company employees, both past and current. The investigation is seeking to determine whether there have been violations of the Eilat Free Trade Zone (Tax Exemptions and Reductions) - 1985 Law regarding the sale of cellular phones in the city of Eilat. The Company is fully cooperating with the Israeli Tax Authority. At this stage, the Company is unable to estimate the impact of the investigation on the Company, its results and its condition, if any.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 – EQUITY AND SHARE BASED PAYMENTS
The Company's share capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange Ltd. under the symbol "PTNR", and are quoted on the NASDAQ Global Select Market™, in the form of American Depositary Shares ("ADSs"), each representing one of the Company’s ordinary shares, under the symbol "PTNR", according to the dual listing regulations. The ADSs are evidenced by American Depositary Receipts ("ADRs"). Since November 2011, Citibank, N.A. serves as the Company's depository for ADSs. The holders of ordinary shares are entitled vote in the general meetings of shareholders and to receive dividends as declared.
Under the provisions of the Company's licenses (note 1(c)), restrictions are placed on transfer of the Company's shares and placing liens thereon. The restrictions include the requirement of advance written consent of the Minister of Communications be received prior to transfer of 10% or more of the Company's shares to a third party. The restrictions require that the "founding shareholders or their approved substitutes", as defined in the cellular license, hold at least 26% of the means of control in the Company, including 5% which must be held by Israeli shareholders (Israeli citizens and residents), who were approved as such by the Minister of Communications.
Through December 31, 2008 the Company purchased its own 4,467,990 shares at the cost of NIS 351 million, and during 2018 the Company purchased its own 6,501,588 shares at the cost of NIS 100 million (upon repurchase were recorded as "treasury shares"). In accordance with the Israeli Companies Law, the treasury shares are considered dormant shares as long as they are held by the Company, and as such they do not bear any rights (including the right to vote in general meetings of shareholders and to receive dividends) until they are transferred to a third party. Some of the treasury shares were offered to employees under a share based compensation plan: Company's Equity Incentive Plan as restricted shares awards ("RSAs") (see (b) below).
As of December 31, 20182019 a total of 8,560,2648,275,837 treasury shares remained, of which 1,210,8331,247,583 were allocated to a trustee on behalf of the employees under the plan. The RSAs offered under the plan are under the control of the Company until vested under the plan and therefore are not presented in the financial statements as outstanding shares until vested.
In June 2017, the Company issued 10,178,211 shares of the Company to the public and to institutional investors, following a tender under a shelf offering, and by way of a private placement. The total net consideration received was approximately NIS 190 million. The offering expenses totaled NIS 7 million.
In January 2020, the Company issued 19,330,183 shares of the Company to institutional investors, following a tender under a shelf offering, and by way of a private placement. The total net consideration received was approximately NIS 276 million. The offering expenses totaled NIS 10 million.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 – EQUITY AND SHARE BASED PAYMENTS (continued)
| b. | Share based compensation to employees |
| (1) | Description of the Equity Incentive Plan |
Share options and restricted shares were granted to employees in accordance with Company's Equity Incentive Plan (the "Plan"). It includes allocation of restricted shares ("RSAs") to the Company's employees and officers and determines the right to vote at the general meetings of shareholders and the right to receive dividends distributed with respect to the restricted shares. The committee may set performance targets as a vesting criterion (independently or in combination with other criteria).
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - EQUITY AND SHARE BASED PAYMENTS (continued)
| b. | Share based compensation to employees (continued)
|
| (1) | Description of the Equity Incentive Plan (continued)
|
The total number of Company's shares reserved for issuance upon exercise of all options or upon the earning of the restricted shares granted under the Plan is 26,917,000, of which 7,076,0347,442,763 remained ungranted as of December 31, 2018.2019. The vesting of the options and the earning of the restricted shares are subject to vesting/restriction periods. The vesting of the options and the earning of the restricted shares granted after June 2014 are also subject to performance conditions set by the Company's organs. The Company expects that the performance conditions will be met. The Plan's principal terms of the options include:
| -
| Exercise price adjustment: The exercise price of options shall be reduced in the following events: (1) dividend distribution other than in the ordinary course: by the gross dividend amount so distributed per share, and (2) dividend distribution in the ordinary course: the exercise price shall be reduced by the amount of a dividend in excess of 40% of the Company’s net income for the relevant period per share, or by the gross dividend amount so distributed per share ("("Full Dividend Mechanism"), depending on the date of granting of the options. |
| -
| Cashless exercise: Most of the options may be exercised only through a cashless exercise procedure, while holders of other options may choose between cashless exercise and the regular option exercise procedure. In accordance with such cashless exercise, the option holder would receive from the Company, without payment of the exercise price, only the number of shares whose aggregate market value equals the economic gain which the option holder would have realized by selling all the shares purchased at their market price, net of the option exercise price. |
| (2) | Information in respect of options and restricted shares granted under the Plan: |
| | Through December 31, 2018 | | | Through December 31, 2019 | | | | Number of options | | | Number of RSAs | | | | | | | | Granted | | | 33,840,569 | | | | 5,112,078 | | | 35,072,795 | | | 5,509,554 | | Shares issued upon exercises and vesting | | | (6,524,865 | ) | | | (2,409,314 | ) | | (6,528,031 | ) | | (2,695,053 | ) | Cancelled upon net exercises, expiration | | | | | | | | | | | | | | | and forfeitures | | | (17,618,438 | ) | | | (1,493,243 | ) | | | | | | | | | Outstanding | | | 9,697,266 | | | | 1,209,521 | | | 9,020,689 | | | 1,230,464 | | Of which: | | | | | | | | | | | | | | | Exercisable | | | 6,266,965 | | | | | | | 5,623,921 | | | | | Vest in 2019 | | | 1,352,861 | | | | 516,869 | | | Vest in 2020 | | | 1,096,972 | | | | 389,199 | | | 1,632,797 | | | 678,379 | | Vest in 2021 | | | 777,962 | | | | 254,937 | | | 1,145,182 | | | 371,076 | | Vest in 2022 | | | 202,506 | | | | 48,516 | | | 618,789 | | | 181,009 | |
As of December 31, 20182019 the Company expects to record a total amount of compensation expenses of approximately NIS 2114 million during the next fourthree years with respect to options and restricted shares granted through December 31, 2018.2019.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - EQUITY AND SHARE BASED PAYMENTS (continued)
b. Share based compensation to employees (continued)
| (3) | Options and RSAs status summary as of December 31, 2016, 2017, 2018 and 20182019 and the changes therein during the years ended on those dates: |
| | | | | | | | | | | | | | | | | | | Weighted average exercise price | | | | | | Weighted average exercise price | | | | | | Weighted average exercise price | | | | | | | NIS | | | | | | NIS | | | | | | NIS | | Outstanding at the beginning of the year | | | 11,285,901 | | | | 29.14 | | | | 8,708,483 | | | | 29.67 | | | | 9,697,266 | | | | 28.19 | | Granted during the year | | | 1,201,358 | | | | 19.45 | | | | 2,536,362 | | | | 18.59 | | | | 1,232,226 | | | | 16.21 | | Exercised during the year | | | (1,906,991 | ) | | | 17.38 | | | | (778,616 | ) | | | 17.11 | | | | (70,824 | ) | | | 16.62 | | Forfeited during the year | | | (988,566 | ) | | | 22.91 | | | | (307,055 | ) | | | 18.79 | | | | (235,150 | ) | | | 18.74 | | Expired during the year | | | | | | | 43.10 | | | | | | | | 28.17 | | | | | | | | 46.64 | | Outstanding at the end of the year | | | | | | | 29.67 | | | | | | | | 28.19 | | | | | | | | 23.62 | | Exercisable at the end of the year | | | | | | | 36.66 | | | | | | | | 33.39 | | | | | | | | 27.11 | | Shares issued during the year due exercises | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at the beginning of the year | | | 1,955,414 | | | | | | | | 1,344,297 | | | | | | | | 1,209,521 | | | | | | Granted during the year | | | 507,146 | | | | | | | | 813,310 | | | | | | | | 397,476 | | | | | | Vested during the year | | | (753,106 | ) | | | | | | | (791,796 | ) | | | | | | | (284,427 | ) | | | | | Forfeited during the year | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at the end of the year | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31 | | | | 2016 | | | 2017 | | | 2018 | | | | Number
| | | Weighted average exercise price | | | Number
| | | Weighted average exercise price | | | Number
| | | Weighted average exercise price | | Share Options: | | | | | NIS | | | | | | NIS | | | | | | NIS | | Outstanding at the beginning of the year | | | 12,686,317 | | | | 29.52 | | | | 11,285,901 | | | | 29.14 | | | | 8,708,483 | | | | 29.67 | | Granted during the year | | | 998,433 | | | | 18.14 | | | | 1,201,358 | | | | 19.45 | | | | 2,536,362 | | | | 18.59 | | Exercised during the year | | | (284,251 | ) | | | 15.74 | | | | (1,906,991 | ) | | | 17.38 | | | | (778,616 | ) | | | 17.11 | | Forfeited during the year | | | (1,219,648 | ) | | | 20.58 | | | | (988,566 | ) | | | 22.91 | | | | (307,055 | ) | | | 18.79 | | Expired during the year | | | (894,950 | ) | | | 38.16 | | | | (883,219 | ) | | | 43.10 | | | | (461,908 | ) | | | 28.17 | | Outstanding at the end of the year | | | | | | | 29.14 | | | | | | | | 29.67 | | | | | | | | 28.19 | | Exercisable at the end of the year | | | | | | | 37.77 | | | | | | | | 36.66 | | | | | | | | 33.39 | | Shares issued during the year due exercises | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSAs: | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at the beginning of the year | | | 2,900,626 | | | | | | | | 1,955,414 | | | | | | | | 1,344,297 | | | | | | Granted during the year | | | 417,176 | | | | | | | | 507,146 | | | | | | | | 813,310 | | | | | | Vested during the year | | | (858,397 | ) | | | | | | | (753,106 | ) | | | | | | | (791,796 | ) | | | | | Forfeited during the year | | | (503,991 | ) | | | | | | | (365,157 | ) | | | | | | | (156,290 | ) | | | | | Outstanding at the end of the year | | | 1,955,414 | | | | | | | | 1,344,297 | | | | | | | | 1,209,521 | | | | | |
| | Options granted in 2016 | | | Options granted in 2017 | | | Options granted in 2018 | | | | | | | | | | | Weighted average fair value of options granted using the | | | | | | | | | | | | | | | | | | | Black & Scholes option-pricing model – per option (NIS) | | | 5.02 | | | | 5.43 | | | | 4.36 | | | 5.43 | | | 4.36 | | | 3.34 | | The above fair value is estimated on the grant date based on the following weighted average assumptions: | | | | | | | | | | | | | | | | | | | | | | Expected volatility | | | 39.5 | % | | | 37.6 | % | | | 34.14 | % | | 37.6 | % | | 34.14 | % | | 33.52 | % | Risk-free interest rate | | | 0.54 | % | | | 0.53 | % | | | 0.79 | % | | 0.53 | % | | 0.79 | % | | 0.57 | % | Expected life (years) | | | 3 | | | | 3 | | | | 3.16 | | | 3 | | | 3.16 | | | 3 | | Dividend yield | | | * | | | | * | | | | * | | | * | | | * | | | * | |
* Due to the Full Dividend Mechanism the expected dividend yield used in the fair value determination of such options was 0% for the purpose of using the Black & Scholes option-pricing model.
The expected volatility is based on a historical volatility, by statistical analysis of the daily share price for periods corresponding the option's expected life. The expected life is expected length of time until expected date of exercising the options, based on historical data on employees' exercise behavior and anticipated future condition. The fair value of RSAs was evaluated based on the stock price on grant date.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 - EQUITY AND SHARE BASED PAYMENTS (continued)
| b. | Share based compensation to employees (continued) |
(4) Information about outstanding options by expiry datesdates: Share options outstanding as of December 31, 20182019 have the following expiry dates and exercise prices: Expire in
| | Number of share options | | | Weighted average exercise price in NIS | | | | | | Weighted average exercise price in NIS | | 2019 | | | 1,535,250 | | | | 46.99 | | | 2020 | | | 2,073,311 | | | | 38.95 | | | 2,218,316 | | | 37.35 | | 2021 | | | 1,930,493 | | | | 20.52 | | | 1,828,653 | | | 20.27 | | 2022 | | | 683,971 | | | | 22.82 | | | 607,657 | | | 23.50 | | 2023 | | | 937,879 | | | | 19.32 | | | 728,040 | | | 19.40 | | 2024 | | | 2,536,362 | | | | 18.59 | | | 2,405,797 | | | 18.60 | | 2025 | | | | | | | | | | | | | 9,697,266 | | | | 28.19 | | | | | | | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – INCOME STATEMENT DETAILS (a) Revenues:
The aggregate amount of transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of December 31, 2018,2019, in addition to deferred revenues (see table below), is approximately NIS 253183 million (mainly services). Of which the Group expects that approximately 38%31% will be recognized as revenue during 2019,2020, approximately 21%17% will be recognized as revenue during 2020,2021, and the rest in later years. The above excludes contracts that are for periods of one year or less or are billed based on time incurred, as permitted under IFRS 15 the transaction price allocated to these unsatisfied contracts is not disclosed.
The table below describes significant changes in contract liabilities:
| | New Israeli Shekels in millions | | | New Israeli Shekels in millions | | | | Deferred revenues from Hot mobile * | | | Other deferred revenues* | | | Deferred revenues from Hot mobile * | | | | | Balance at January 1, 2017 | | | 226 | | | | 45 | | | Revenue recognized that was included in the contract liability balance at the beginning of the year | | | (31 | ) | | | (29 | ) | | Increases due to cash received, excluding amounts recognized as revenues during the year | | | - | | | | 30 | | | Balance at December 31, 2017 | | | 195 | | | | 46 | | | Balance at January 1, 2018 | | | | | | | | | | Revenue recognized that was included in the contract liability balance at the beginning of the year | | | (31 | ) | | | (21 | ) | | (31 | ) | | (21 | ) | Increases due to cash received, excluding amounts recognized as revenues during the year | | | - | | | | 20 | | | | | | | | | | Balance at December 31, 2018 | | | 164 | | | | 45 | | | | | | | | | | Revenue recognized that was included in the contract liability balance at the beginning of the year | | | (31 | ) | | (19 | ) | Increases due to cash received, excluding amounts recognized as revenues during the year | | | | | | | | | | Balance at December 31, 2019 | | | | | | | | | |
* Current and non-current deferred revenues.
Disaggregation of revenues:
| | Year ended December 31, 2018 New Israeli Shekels in millions | | | Year ended December 31, 2019 New Israeli Shekels in millions | | | | Cellular segment | | | Fixed-line segment | | | Elimination | | | Consolidated | | | | | | | | | | | | | | Segment revenue - Services to private customers | | | 1,045 | | | | 418 | | | | (95 | ) | | | 1,368 | | | 990 | | | 513 | | | (87 | ) | | 1,416 | | Segment revenue - Services to business customers | | | 798 | | | | 434 | | | | (76 | ) | | | 1,156 | | | | | | | | | | | | | | | | | | Segment revenue - Services revenue total | | | 1,843 | | | | 852 | | | | (171 | ) | | | 2,524 | | | | | | | | | | | | | | | | | | Segment revenue - Equipment | | | 643 | | | | 92 | | | | | | | | 735 | | | | | | | | | | | | | | | | | | Total Revenues | | | 2,486 | | | | 944 | | | | (171 | ) | | | 3,259 | | | | | | | | | | | | | | | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – INCOME STATEMENT DETAILS (continued)
| | Year ended December 31, 2018 New Israeli Shekels in millions | | | | | | | | | | | | | | | Segment revenue - Services to private customers | | | 1,045 | | | | 418 | | | | (95 | ) | | | 1,368 | | Segment revenue - Services to business customers | | | | | | | | | | | | | | | | | Segment revenue - Services revenue total | | | | | | | | | | | | | | | | | Segment revenue - Equipment | | | | | | | | | | | | | | | | | Total Revenues | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2017 New Israeli Shekels in millions | | | | | | | | | | | | | | | Segment revenue - Services to private customers | | | 1,126 | | | | 320 | | | | (98 | ) | | | 1,348 | | Segment revenue - Services to business customers | | | | | | | | | | | | | | | | | Segment revenue - Services revenue total | | | | | | | | | | | | | | | | | Segment revenue - Equipment | | | | | | | | | | | | | | | | | Total Revenues | | | | | | | | | | | | | | | | |
Revenues from services are recognized over time. For the years 2017, 2018 and 2019 revenues from equipment are recognized at a point of time, except for NIS 11 million, NIS 16 million and NIS 17 million, respectively, which were recognized over time. Revenues from equipment for the years 2017, 2018 and 2019 include revenues from operating leases according to IAS 17 and IFRS 16, in an amount of NIS 11 million, NIS 16 million and NIS 17 million, respectively.
Revenues from services for the years 2017, 2018 and 2019 include revenues from operating leases according to IAS17 and IFRS 16 in an amount of NIS 10 million, NIS 37 million and NIS 57 million, respectively. See also note 7 with respect to payment terms of sales of equipment, trade receivables and allowance for expected credit losses.
(b) Cost of revenues | | | | | | | | | | | | | | | | | | | | | | Transmission, communication and content providers | | | 738 | | | | 742 | | | | 746 | | Cost of equipment and accessories | | | 519 | | | | 543 | | | | 500 | | Depreciation and amortization | | | 477 | | | | 457 | | | | 603 | | Wages, employee benefits expenses and car maintenance | | | 293 | | | | 310 | | | | 312 | | Costs of handling, replacing or repairing equipment | | | 75 | | | | 73 | | | | 71 | | Operating lease, rent and overhead expenses | | | 184 | | | | 184 | | | | 73 | | Network and cable maintenance | | | 97 | | | | 109 | | | | 99 | | Internet infrastructure and service providers | | | 95 | | | | 143 | | | | 173 | | IT support and other operating expenses | | | 61 | | | | 56 | | | | 57 | | Amortization of deferred expenses - rights of use | | | 40 | | | | 47 | | | | 28 | | Other | | | | | | | | | | | | | Total cost of revenues | | | | | | | | | | | | |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 – INCOME STATEMENT DETAILS (continued)
(c) Selling and marketing expenses | | | | | | | | | | | | | | | | | | | | | | Wages, employee benefits expenses and car maintenance | | | 106 | | | | 111 | | | | 102 | | Advertising and marketing | | | 44 | | | | 46 | | | | 44 | | Selling commissions, net | | | 29 | | | | 27 | | | | 28 | | Depreciation and amortization | | | 54 | | | | 77 | | | | 106 | | Operating lease, rent and overhead expenses | | | 23 | | | | 19 | | | | 4 | | Other | | | | | | | | | | | | | Total selling and marketing expenses | | | | | | | | | | | | |
| | Year ended December 31, 2017 New Israeli Shekels in millions | | | | Cellular segment | | | Fixed-line segment | | | Elimination
| | | Consolidated
| | Segment revenue - Services to private customers* | | | 1,126 | | | | 320 | | | | (98 | ) | | | 1,348 | | Segment revenue - Services to business customers* | | | 852 | | | | 457 | | | | (75 | ) | | | 1,234 | | Segment revenue - Services revenue total | | | 1,978 | | | | 777 | | | | (173 | ) | | | 2,582 | | Segment revenue - Equipment | | | 610 | | | | 76 | | | | | | | | 686 | | Total Revenues | | | 2,588 | | | | 853 | | | | (173 | ) | | | 3,268 | |
(d) General and administrative expenses | | | | | | | | | | | | | | | | | | | | | | Wages, employee benefits expenses and car maintenance | | | 79 | | | | 76 | | | | 85 | | Professional fees | | | 22 | | | | 21 | | | | 21 | | Credit card and other commissions | | | 14 | | | | 14 | | | | 13 | | Depreciation | | | 9 | | | | 11 | | | | 14 | | Other | | | | | | | | | | | | | Total general and administrative expenses | | | | | | | | | | | | |
* Service revenues for 2017 were reallocated between private and business customers.
(e) Employee benefit expense | | | | | | | | | | | | | | | | | | | | | | Wages, employee benefits expenses and car maintenance, | | | | | | | | | | before capitalization | | | 503 | | | | 543 | | | | 543 | | Less: expenses capitalized (notes 10, 11) | | | (77 | ) | | | (92 | ) | | | (96 | ) | Service costs: defined benefit plan (note 16(2)) | | | 15 | | | | 11 | | | | 12 | | Service costs: defined contribution plan (note 16(1)) | | | 17 | | | | 20 | | | | 23 | | Employee share based compensation expenses (note 21(b)) | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues from services are recognized over time. ForIn March 2019 the years 2017Company signed a new collective employment agreement with the employees' representatives and 2018 revenues from equipment are recognized at a point of time, except for NIS 11 million and NIS 16 million, respectively, which were recognized over time. Revenues from equipmentthe Histadrut New General Labor Organization (hereinafter - the "Parties") that includes an economic chapter, for the years 20172019-2021 ("the Collective Employment Agreement"). The Collective Employment Agreement grants Partner employees, among other things: an immediate salary increase for employees with a seniority of 1.5 years or more; an additional salary increase contingent upon the Company's performance; sharing of the Company's profits and 2018 include revenues from operating leases according to IAS 17,the terms of eligibility for these grants in an amount of NIS 11 million and NIS 16 million, respectively.
Revenues from servicesthe years 2019-2021. In addition, the Parties negotiated a salary increase mechanism for the years 2017year 2020 and 2018 include revenues from operating leases according to IAS17 in an amountwill renegotiate another increase for the year 2021 towards the end of NIS 10 million and NIS 37 million, respectively. See also note 7 with respect to payment terms of sales of equipment, trade receivables and allowance for expected credit losses.
(b) Cost of revenues | | New Israeli Shekels | | | | Year ended December 31, | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | Transmission, communication and content providers | | | 814 | | | | 738 | | | | 742 | | Cost of equipment and accessories | | | 625 | | | | 519 | | | | 543 | | Depreciation and amortization | | | 501 | | | | 477 | | | | 457 | | Wages, employee benefits expenses and car maintenance | | | 270 | | | | 293 | | | | 310 | | Costs of handling, replacing or repairing equipment | | | 93 | | | | 75 | | | | 73 | | Operating lease, rent and overhead expenses | | | 258 | | | | 184 | | | | 184 | | Network and cable maintenance | | | 150 | | | | 97 | | | | 109 | | Internet infrastructure and service providers | | | 68 | | | | 95 | | | | 143 | | IT support and other operating expenses | | | 62 | | | | 61 | | | | 56 | | Amortization of rights of use | | | 30 | | | | 40 | | | | 47 | | Other | | | 53 | | | | 48 | | | | 36 | | Total cost of revenues | | | 2,924 | | | | 2,627 | | | | 2,700 | |
(c) Selling and marketing expenses | | New Israeli Shekels | | | | Year ended December 31, | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | Wages, employee benefits expenses and car maintenance | | | 177 | | | | (*)106 | | | | 111 | | Advertising and marketing | | | 68 | | | | 44 | | | | 46 | | Selling commissions, net | | | 82 | | | | (*)29 | | | | 27 | | Depreciation and amortization | | | 55 | | | | (*)54 | | | | 77 | | Operating lease, rent and overhead expenses | | | 29 | | | | 23 | | | | 19 | | Other | | | 15 | | | | 13 | | | | 13 | | Total selling and marketing expenses | | | 426 | | | | 269 | | | | 293 | |
the year 2020.
(*) See Notes 2(n), 2(f)(5) regarding the early adoption of IFRS 15, Revenue from Contracts with Customers.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 – INCOME STATEMENT DETAILS (continued)
(d) General and administrative expenses | | New Israeli Shekels | | | | Year ended December 31, | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | Wages, employee benefits expenses and car maintenance | | | 101 | | | | 79 | | | | 76 | | Professional fees | | | 32 | | | | 22 | | | | 21 | | Credit card and other commissions | | | 14 | | | | 14 | | | | 14 | | Depreciation | | | 9 | | | | 9 | | | | 11 | | Other | | | 25 | | | | 20 | | | | 26 | | Total general and administrative expenses | | | 181 | | | | 144 | | | | 148 | |
(e) Employee benefit expense | | New Israeli Shekels | | | | Year ended December 31, | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | Wages and salaries including social benefits, social | | | | | | | | | | security costs, pension costs and car rent and maintenance before capitalization | | | 537 | | | | 503 | | | | 543 | | Less: expenses capitalized (notes 10, 11) | | | (65 | ) | | | (77 | ) | | | (92 | ) | Service costs: defined benefit plan (note 16(2)) | | | 17 | | | | 15 | | | | 11 | | Service costs: defined contribution plan (note 16(1)) | | | 14 | | | | 17 | | | | 20 | | Employee share based compensation expenses (note 21(b)) | | | 45 | | | | 20 | | | | 15 | | | | | 548 | | | | 478 | | | | 497 | |
See also note 28 with respect of collective employment agreement.
NOTE 23 – OTHER INCOME, NET
| | | | | | | | | | | | | | | | | | Unwinding of trade receivables | | | 27 | | | | 25 | | | | 23 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | |
| | New Israeli Shekels Year ended December 31, | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | Unwinding of trade receivables | | | 41 | | | | 27 | | | | 25 | | Other income, net | | | 4 | | | | 4 | | | | 3 | | | | | 45 | | | | 31 | | | | 28 | |
PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 – FINANCE COSTS, NET
| | | | | | | | | | | | | | | | | | | | | | Net foreign exchange rate gains | | | 2 | | | | * | | | | 4 | | Interest income from cash, cash equivalents and deposits | | | | | | | | | | | | | Finance income | | | | | | | | | | | | | | | | | | | | | | | | | | Interest expenses | | | 171 | | | | 47 | | | | 40 | | CPI linkage expenses | | | 4 | | | | 3 | | | | * | | Interest for lease liabilities | | | | | | | | | | | 20 | | Finance charges for financial liability | | | | | | | | | | | 9 | | Other finance costs | | | | | | | | | | | | | Finance expenses | | | | | | | | | | | | | | | | | | | | | | | | | |
| | New Israeli Shekels | | | | Year ended December 31, | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | Net foreign exchange rate gains | | | 7 | | | | 2 | | | | * | | CPI linkage income | | | 2 | | | | | | | | | | Interest income from cash equivalents | | | 1 | | | | 2 | | | | 2 | | Other | | | 3 | | | | * | | | | * | | Finance income | | | 13 | | | | 4 | | | | 2 | | | | | | | | | | | | | | | Interest expenses | | | 105 | | | | 171 | | | | 47 | | CPI linkage expenses | | | | | | | 4 | | | | 3 | | Other finance costs | | | 13 | | | | 9 | | | | 5 | | Finance expenses | | | | | | | | | | | | | | | | | | | | | | | | | |
* Representing an amount of less than 1 million PARTNER COMMUNICATIONS COMPANY LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 – INCOME TAX EXPENSES
| a. | Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 |
Under this law, results for tax purposes through tax-year 2007 were measured in real terms, having regard to the changes in the Israeli CPI. Commencing the tax-year 2008 and thereafter the Company and its subsidiaries are measured for tax purposes in nominal values, except for certain transition provisions: certain losses carryforward for tax purposes, and certain tax deductible depreciation expenses are adjusted to the changes in the CPI until the end of 2007.
| b.a. | Corporate income tax rates applicable to the Group |
The Group is taxed according to the regular corporate income tax in Israel.
On August 5, 2013, the Law for Change of National Priorities (Legislative Amendments for Achieving the Budgetary Goals for 2013-2014), 2013 was published, enacts, among other things, the raising of the corporate tax rate beginning in 2014 and thereafter to 26.5% (instead of 25%).
In January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published, enacting a reduction of corporate tax rate in 2016 and thereafter, from 26.5% to 25%.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, enacting that the corporate tax rate will be 24% in 2017 and 23% in 2018 and thereafter.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 - INCOME TAX EXPENSES(continued)
c.b. Deferred income taxes
Balances of deferred tax asset (liability) in NIS millions are attributable to the following items:
Balance of deferred tax asset (liability) in respect of | | | | | Charged to the income statement | | | Charged to other comprehensive income | | | | | | Charged to the income statement | | | Charged to other comprehensive income | | | | | | Charged to the income statement | | | Charged to other comprehensive income | | | Charged to retained earnings upon implementation of IFRS 16 | | | | | Allowance for credit losses | | | 45 | | | | * | | | | | | | 45 | | | | (2 | ) | | | | | | 43 | | | | (4 | ) | | | | | | | | | 39 | | Provisions for employee rights | | | 14 | | | | * | | | | 1 | | | | 15 | | | | 2 | | | | * | | | | 17 | | | | 1 | | | | * | | | | | | | 18 | | Depreciable fixed assets and software | | | (35 | ) | | | 8 | | | | | | | | (27 | ) | | | 8 | | | | | | | | (19 | ) | | | 8 | | | | | | | | | | | (11 | ) | Lease - Right-of-use assets | | | - | | | | | | | | | | | | - | | | | | | | | | | | | - | | | | 17 | | | | | | | | (151 | ) | | | (134 | ) | Leases liabilities | | | - | | | | | | | | | | | | - | | | | | | | | | | | | - | | | | (15 | ) | | | | | | | 157 | | | | 142 | | Intangibles, deferred expenses and carry forward losses | | | 9 | | | | 7 | | | | | | | | 16 | | | | (24 | ) | | | | | | | (8 | ) | | | (11 | ) | | | | | | | | | | | (19 | ) | Options granted to employees | | | 6 | | | | * | | | | | | | | 6 | | | | (1 | ) | | | | | | | 5 | | | | 1 | | | | | | | | | | | | 6 | | Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance of deferred tax asset (liability) in respect of | | As at January 1, 2016 | | | Charged to the income statement | | | Charged to other comprehensive income | | | Effect of change in corporate tax rate | | | As at December 31, 2016 | | | Charged to the income statement | | | Charged to other comprehensive income | | | As at December 31, 2017 | | | Charged to the income statement | | | Charged to other comprehensive income | | | As at December 31, 2018 | | Allowance for credit losses | | | 45 | | | | 6 | | | | | | | (6 | ) | | | 45 | | | | * | | | | | | | 45 | | | | (2 | ) | | | | | | 43 | | Provisions for employee rights | | | 14 | | | | * | | | | 2 | | | | (2 | ) | | | 14 | | | | * | | | | 1 | | | | 15 | | | | 2 | | | | * | | | | 17 | | Depreciable fixed assets and software | | | (53 | ) | | | 13 | | | | | | | | 5 | | | | (35 | ) | | | 8 | | | | | | | | (27 | ) | | | 8 | | | | | | | | (19 | ) | Intangibles, deferred expenses and carry forward losses | | | 22 | | | | (8 | ) | | | | | | | (5 | ) | | | 9 | | | | 7 | | | | | | | | 16 | | | | (24 | ) | | | | | | | (8 | ) | Options granted to employees | | | 3 | | | | 4 | | | | | | | | (1 | ) | | | 6 | | | | * | | | | | | | | 6 | | | | (1 | ) | | | | | | | 5 | | Other | | | 18 | | | | (18 | ) | | | | | | | 2 | | | | 2 | | | | (2 | ) | | | | | | | * | | | | * | | | | | | | | * | | Total | | | 49 | | | | (3 | ) | | | 2 | | | | (7 | ) | | | 41 | | | | 13 | | | | 1 | | | | 55 | | | | (17 | ) | | | * | | | | 38 | |
* Representing an amount of less than NIS 1 million.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 25 - INCOME TAX EXPENSES (continued)
c.b. Deferred income taxes (continued)
| | | | | | | | | | | | | | | | | | | Deferred tax assets | | | | | | | Deferred tax assets to be recovered after more than 12 months | | | 69 | | | | 173 | | Deferred tax assets to be recovered within 12 months | | | | | | | | | | | | | | | | | | Deferred tax liabilities | | | | | | | | | Deferred tax liabilities to be recovered after more than 12 months | | | 64 | | | | 164 | | Deferred tax liabilities to be recovered within 12 months | | | | | | | | | | | | | | | | | | Deferred tax assets, net | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Deferred tax assets | | | | | | | Deferred tax assets to be recovered after more than 12 months | | | 80 | | | | 69 | | Deferred tax assets to be recovered within 12 months | | | | | | | | | | | | | | | | | | Deferred tax liabilities | | | | | | | | | Deferred tax liabilities to be recovered after more than 12 months | | | 63 | | | | 64 | | Deferred tax liabilities to be recovered within 12 months | | | | | | | | | | | | | | | | | | Deferred tax assets, net | | | | | | | | |
| d.c. | Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax rates applicable to companies in Israel (see (b)(a) above), and the actual tax expense: |
| | New Israeli Shekels | | | | | | | Year ended December 31 | | | | | | | 2016 | | | 2017 | | | 2018 | | | | | | | | | | | | | In millions | | | | | Profit before taxes on income, | | | | | | | | | | | | | | | | | | | as reported in the income statements | | | 88 | | | | 135 | | | | 63 | | | | | | | | | | | | | | Theoretical tax expense | | | 22 | | | | 32 | | | | 14 | | | 32 | | | 14 | | | 4 | | Increase in tax resulting from disallowable deductions | | | 11 | | | | 8 | | | | 9 | | | 8 | | | 9 | | | 5 | | Taxes on income in respect of previous years | | | (4 | ) | | | (10 | ) | | | (15 | ) | | (10 | ) | | (15 | ) | | (7 | ) | Change in corporate tax rate, see (b) above | | | 7 | | | | | | | | | | | Temporary differences and tax losses for which no deferred income | | | | | | | | | | | | | | | | | | | | | | tax asset was recognized | | | | | | | (9 | ) | | | (1 | ) | | | | | | | | | | | | | Income tax expenses | | | 36 | | | | 21 | | | | 7 | | | | | | | | | | | | | |
* Representing an amount of less than NIS 1 million.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25- INCOME TAX EXPENSES (continued)
| e.d. | Taxes on income included in the income statements: |
| | | | | | | | | | | | | | | | | | | | | | For the reported year: | | | | | | | | | | Current | | | 44 | | | | 6 | | | | 3 | | Deferred, see (c) above | | | (4 | ) | | | 17 | | | | 4 | | In respect of previous year: | | | | | | | | | | | | | Current | | | (10 | ) | | | (15 | ) | | | (7 | ) | Deferred, see (c) above | | | | | | | | | | | | | | | | | | | | | | | | | |
| | New Israeli Shekels | | | | Year ended December 31 | | | | 2016 | | | 2017 | | | 2018 | | | | In millions | | For the reported year: | | | | | | | | | | Current | | | 31 | | | | 44 | | | | 6 | | Deferred, see (c) above | | | 2 | | | | (4 | ) | | | 17 | | Effect of change in corporate tax rate on | | | | | | | | | | | | | deferred taxes | | | 7 | | | | | | | | | | In respect of previous year: | | | | | | | | | | | | | Current | | | (4 | ) | | | (10 | ) | | | (15 | ) | Deferred, see (c) above | | | | | | | (9 | ) | | | (1 | ) | | | | 36 | | | | 21 | | | | 7 | |
* Representing an amount of less than NIS 1 million.
| 1) | The Company has received final corporate tax assessments through the year ended December 31, 2015. DuringIn 2017, the Company received final income tax assessments for the years 2014 and 2015. |
| 2) | AIn 2018, a Group's subsidiary has received final corporate tax assessments through the year ended December 31, 2016. During 2018, a subsidiary received finalincome tax assessments for the years 2013 through 2016. |
| 3) | As a general rule, income tax self-assessments filed by another two other subsidiaries through the year ended December 31, 20132014 are, by law, now regarded as final. |
| f. | Tax losses carried forward to future years: |
At December 31, 2019, the Company had carry forward tax losses of approximately NIS 92 million. The losses can be carried forward indefinitely and have no expiry date. The Company recognized deferred tax asset regarding the tax losses.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES
| a. | Key management compensation |
Key management personnel are the senior management of the Company and the members of the Company's Board of Directors.
| | | | | | | | | | | | | | | | | | Key management compensation expenses comprised | | | | Salaries and short-term employee benefits | | | 21 | | | | 22 | | | | 27 | | Long term employment benefits | | | 3 | | | | 3 | | | | 3 | | Employee share-based compensation | | | | | | | | | | | | | expenses | | | | | | | | | | | | | | | | | | | | | | | | | |
| | New Israeli Shekels | | | | Year ended December 31 | | | | 2016 | | | 2017 | | | 2018 | | Key management compensation expenses comprised | | In millions | | Salaries and short-term employee benefits | | | 22 | | | | 21 | | | | 22 | | Long term employment benefits | | | 3 | | | | 3 | | | | 3 | | Employee share-based compensation expenses | | | 17 | | | | 11 | | | | 9 | | | | | 42 | | | | 35 | | | | 34 | |
| | | | | | | | | | | | | | | Statement of financial position items - key management | | | | Current liabilities: | | | | | | | | | Non-current liabilities: | | | | | | | | |
| | New Israeli Shekels | | | | December 31, | | | | 2017 | | | 2018 | | Statement of financial position items - key management | | In millions | | Current liabilities: | | | 11 | | | | 9 | | Non-current liabilities: | | | 11 | | | | 10 | |
| b. | In the ordinary course of business, key management or their relatives may have engaged with the Company with immaterial transactions that are under normal market conditions. |
| c. | Principal shareholder: On January 29, 2013, S.B. Israel Telecom, Ltd. completedan affiliate of Saban Capital Group LLC, a private investment firm, based in Los Angeles, California, specializing in the acquisitionmedia, entertainment and communications industries, is the registered owner of 48,050,000 ordinarythe shares in the Company’s share register. On November 11, 2019, S.B. Israel Telecom filed an amendment to its Schedule 13D with the SEC stating that it had no sole or shared voting or dispositive power over any shares of the Company, and becamethat as a result of the Receiver Appointment (as defined in the filed amendment), as of November 12, 2019, the Reporting Persons (as defined in the filed amendment) ceased to beneficially own any ordinary shares of the Company. On November 12, 2019, the District Court of Tel Aviv ("the Court") issued a court order ("the Court Order") under which attorney Ehud Sol (the “Receiver") was appointed as receiver for 49,862,800 of the Company's principalshares, representing as of March 1, 2020, approximately 27.16% of our issued and outstanding share capital and the largest block of shares held by a single shareholder. See also note 1(a). As of December 31, 2018The shares (the “Pledged Shares”) had been purchased by S.B. Israel Telecom Ltd. ("S.B. Israel Telecom") from Advent Investments Pte Ltd (“Advent”) in 2013; in connection with the principal shareholder held 49,862,800 ordinary shares. See also note 21(a).purchase, S.B. Israel Telecom assumed certain debt owed to Advent, and agreed that such debt would be secured by, among other things, the Pledged Shares. S.B. Israel Telecom defaulted on the payment, and on November 11, 2019, consented to enforcement and foreclosure proceedings with respect to the Pledged Shares. |
| d. | Associates – investment in and balances with PHI – see note 9. |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued)
|
| The Court Order was issued due to an application filed by Advent ("Advent's Application") and granted the Receiver substantial rights related to the Pledged Shares, including the right to participate in our shareholders’ meetings, to vote the Pledged Shares, to receive dividends, and any contractual right related to the Pledged Shares, although as noted below, the Receiver may not sell or transfer the Pledged Shares without the Court’s approval. Without derogating from those rights of the Receiver, S.B. Israel Telecom remains the holder of legal title to the Pledged Shares. On December 9, 2019, the Ministry of Communications granted, within its powers, a permit to the Receiver to exercise means of control of the Company by himself. As a result, the Receiver has the power to substantially influence the nomination of the Company’s Board of Directors and to play a preponderant if not decisive role in other decisions taken at meetings of our shareholders. For example, to the extent that the Company's discussions with Hot Telecom result in the entry into the Proposed Transaction, the Receiver would have the power to block approval of the Proposed Transaction, which requires approval by holders of at least 75% of the Company’s shares, since the Receiver has the right to vote over 27% of the shares. The Receiver is expected to hold such rights until the Pledged Shares are sold or transferred to Advent, actions that would require the Court’s approval according to the Court Order and Advent's Application. S.B. Israel Telecom has agreed that it will not raise an objection to such a transfer to Advent if it occurs within 9 months of November 11, 2019, the date of its consent; following such period, S.B. Israel Telecom may object to such transfer, particularly if it believes that the value of the Pledged Shares as of the proposed transfer date exceeds the amount of its defaulted debt to Advent. The Receiver is to exercise the rights associated with the Pledged Shares based on its judgment and subject to the Court’s orders and approvals. The Receiver is not obligated to exercise such rights in the best interests of the Company or its shareholders. |
| d. | Holdings of approved Israeli shareholders in the Company: The provisions of the Company's cellular license require, among others, that the "founding shareholders or their approved substitutes", as defined in the cellular license, hold at least 26% of the means of control in the Company, including 5% which must be held by Israeli shareholders (Israeli citizens and residents), who were approved as such by the Minister of Communications. The controlling stake of the Phoenix Group (One of the Company’s approved Israeli shareholders) has been sold to foreign entities. On November 12, 2019, the Israeli Ministry of Communications issued a temporary order (ending on November 1, 2020) amending the Company’s cellular license and reducing the percentage that the approved Israeli shareholders are required to hold by the amount of shares now held by the foreign entities (from 5% down to 3.82% of the means of control in the Company). This temporary order will allow the Ministry and the Company to resolve the issue of holdings of approved Israeli shareholders in the Company until the temporary order expires. |
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 27 – EARNINGS–EARNINGS PER SHARE
Following are data relating to the profit and the weighted average number of shares that were taken into account in computing the basic and diluted EPS:
| | | | | | | | | | | | | | Profit used for the computation of | | | | | | | | | | basic and diluted EPS attributable to the owners of the Company (NIS in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average number of shares used | | | | | | | | | | | | | in computation of basic EPS (in thousands) | | | 162,733 | | | | 165,979 | | | | 162,831 | | | | | | | | | | | | | | | Add - net additional shares from assumed | | | | | | | | | | | | | exercise of employee stock options and restricted | | | | | | | | | | | | | shared (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average number of shares used in | | | | | | | | | | | | | computation of diluted EPS (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Number of options and restricted shares not taken into | | | | | | | | | | | | | account in computation of diluted earnings per share, | | | | | | | | | | | | | because of their anti-dilutive effect (in thousands) | | | | | | | | | | | | |
| | Year ended December 31 | | | | 2016 | | | 2017 | | | 2018 | | Profit used for the computation of | | | | | | | | | | basic and diluted EPS attributable to the owners of the Company (NIS in millions) | | | 52 | | | | 114 | | | | 57 | | | | | | | | | | | | | | | Weighted average number of shares used | | | | | | | | | | | | | in computation of basic EPS (in thousands) | | | 156,268 | | | | 162,733 | | | | 165,979 | | | | | | | | | | | | | | | Add - net additional shares from assumed | | | | | | | | | | | | | exercise of employee stock options and restricted | | | | | | | | | | | | | shared (in thousands) | | | 1,828 | | | | 1,804 | | | | 983 | | | | | | | | | | | | | | | Weighted average number of shares used in | | | | | | | | | | | | | computation of diluted EPS (in thousands) | | | 158,096 | | | | 164,537 | | | | 166,962 | | | | | | | | | | | | | | | Number of options and restricted shares not taken into | | | | | | | | | | | | | account in computation of diluted earnings per share, | | | | | | | | | | | | | because of their anti-dilutive effect (in thousands) | | | 8,906 | | | | 5,650 | | | | 9,609 | |
NOTE 28 – SUBSEQUENT EVENT – CORONAVIRUS DISEASE COVID-19
From March 2020, the novel coronavirus disease COVID-19 began to have a harmful effect on our business, revenues and results from operations. In particular, the significant fall in the volume of international travel by our customers has begun to cause a decrease in revenues from roaming services, and the closure of shopping malls and changes in general consumer behavior have begun to affect the volume of sales of equipment.
As of the date of approval of these financial statements, the impact has been limited, since the crisis only began at the beginning of March 2020. In addition, the impact has been mitigated by a number of actions taken by the Company, including cutting costs and sending a large quantity of employees on unpaid leave. However, should these trends continue, this may have a material harmful effect on our results of operations and financial position for 2020.
PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 28 – COLLECTIVE EMPLOYMENT AGREEMENT
In March 2019 the Company signed a new collective employment agreement with the employees' representatives and the Histadrut New General Labor Organization (hereinafter - the "Parties") that includes an economic chapter, for the years 2019-2021 ("the Collective Employment Agreement"). The Collective Employment Agreement grants Partner employees, among other things: an immediate salary increase for employees with a seniority of 1.5 years or more; an additional salary increase contingent upon the Company's performance; sharing of the Company's profits and the terms of eligibility for these grants in the years 2019-2021. In addition, the Parties agreed to negotiate at a later time a salary increase mechanism for the years 2020 and 2021.
The estimated additional cost of the Collective Employment Agreement for the years 2019-2021 is NIS 11 million not including salary increases for the years 2020-2021 (but including the salary increase effect of 2019 for the entire agreement term).
NOTE 29 – SUBSEQUENT EVENTSEVENT – OFFER TO BUY 100% OF SHARE CAPITAL BY HOT TELECOMMUNICATION SYSTEMS LTD.
Subsequent eventsHOT Telecommunication Systems Ltd. and its controlling shareholder, Altice Europe N.V, (the "Potential Acquiror") have been evaluated through the date of approvalproposed to acquire 100% of the financial statements, see also note 9.issued share capital of the Company (the "Proposed Transaction"). The Potential Transaction is the subject of discussions between the Company and the Potential Acquiror and entry into the Potential Transaction would require approval by the Board of Directors of the Company.
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